Walmart: An Underrated Contender for the $1 Trillion Club
As of now, the prestigious trillion-dollar club is home to eight powerhouse companies with market capitalizations exceeding $1 trillion: Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Tesla, and Berkshire Hathaway. These stocks are synonymous with wealth creation, yet they are not typically known for their generous dividends. However, this narrative might soon evolve, thanks to the impressive trajectory of Walmart (NYSE: WMT).
Walmart’s Resilience in Challenging Times
Walmart stands at the forefront of the retail industry, boasting an annual revenue that ranks it as the largest company globally. The retailer has made incredible strides in honing its omnichannel sales strategy while weathering the economic storms of inflationary pressures and fluctuating consumer spending that have plagued many competitors.
In its latest quarterly report, Walmart showcased robust growth, with comparable store sales in the U.S. jumping by 5.3%—its best performance in over five quarters. Notably, its Sam’s Club division delivered even better results, showing 7% growth in comparable store sales (excluding fuel).
Moreover, the international segment that once posed challenges is now flourishing, with a 12.4% increase in constant-currency revenue, totaling $30.3 billion. Overall, Walmart’s revenue climbed 5.5% year-over-year to $169.6 billion, surpassing the consensus estimate of $166.6 billion.
Strong Margins and Earnings Growth
Walmart’s financials reveal not just growth but enhanced efficiency as well. The gross margin has improved by 21 basis points to 24.2%, primarily due to effective inventory management and a decrease in markdowns. Operating income also increased by 8.2% to $6.7 billion, leading to an adjusted earnings per share (EPS) rise from $0.51 to $0.58, exceeding analyst expectations.
In addition to traditional retail strengths, Walmart is capitalizing on emerging opportunities in advertising, where revenue soared by 28%. The global e-commerce segment also saw a substantial 27% increase in sales, allowing Walmart to gain market share against giants like Amazon.
Heading Towards the $1 Trillion Mark
Walmart’s market capitalization recently hit the $700 billion mark for the first time, inching ever closer to the coveted $1 trillion milestone. To achieve this, the stock only requires a 43% growth—an achievable target given its current momentum. However, while the stock has surged 66% year-to-date, sustaining such a performance may be challenging going forward.
Risk vs. Reward: The Valuation Dilemma
Despite its impressive performance, Walmart’s stock presents a valuation challenge. Trading at a price-to-earnings (P/E) ratio of 35, it stands above most of its retail peers and aligns it more closely with technology behemoths within the trillion-dollar club. This elevated valuation stems from Walmart’s stellar execution, consistent growth, and margin expansion over the years.
It’s worth noting that many skeptics in the past believed Walmart would struggle against the likes of Amazon. Instead, Walmart has managed to fortify its competitive advantages by enhancing its omnichannel capabilities and discovering new growth avenues like advertising.
A Dividend Entertainer: Walmart’s Stock Appeal
Walmart may not boast the yield of a traditional dividend stock—with its current yield falling to just 1%—yet it excels in reliability. With a remarkable 51 consecutive years of annual dividend increases, Walmart qualifies as a Dividend King.
In the latest quarterly earnings report, it’s clear Walmart continues to hold onto its competitive advantages such as scale and a recession-resistant business model focused on necessities. This positions the company well in an era where economic uncertainties loom large.
Is Walmart a Buy for Your Portfolio?
With its proven ability to grow amid challenging conditions, Walmart appears to be a compelling choice for investors seeking a blend of growth and income potential. As it sharpens its focus on general merchandise, the path to a $1 trillion valuation seems increasingly viable.
However, before making a purchase, it’s essential to weigh your options. Notably, the Motley Fool Stock Advisor team recently identified 10 stocks they believe are better positioned to deliver substantial returns—and Walmart is not featured on that list.
Conclusion
While Walmart navigates a path toward a $1 trillion market cap, its record of consistent dividends, alongside its strategic growth initiatives, present a complex yet enticing investment case. Investors should approach with caution but remain open to the potential rewards this veteran retailer offers as it continues to reinvent itself in an ever-evolving market landscape.
Always consider the wider investment landscape and your financial goals before diving in. Don’t let the allure of a strong past performance cloud your judgment—do your research and make informed decisions for your financial future.