Walmart Stock Up 19% in 3 Months: What's the Best Move for Investors?

Walmart Inc. WMT has been enjoying gains from its formidable market position, courtesy of a well-diversified product mix and a vast store network that serves as a backbone for in-store and online sales. The company’s shares have rallied 19% in the past three months compared with the industry’s growth of 18.2%. The omnichannel retailer has also fared better than the broader Zacks Retail – Wholesale sector and the S&P 500’s respective gains of 8.5% and 6% in the same frame, showcasing its resilience amid economic headwinds.WMT Price Performance vs. Industry, S&P 500 & SectorImage Source: Zacks Investment ResearchWalmart closed the trading session at $83.04 on Thursday, slightly shy of its 52-week high of $83.34, scaled on Oct. 23. Technical indicators also support the stock, which is trading above its 50-day and 200-day moving averages. Trading above these averages signals bullish sentiments.WMT Trades Above 50 and 200-Day Moving AverageImage Source: Zacks Investment ResearchHow Walmart's Strategy Powers Market GainsWalmart’s sustained investments in its e-commerce and digital infrastructure have been instrumental in supporting its rally. The company has expanded its online grocery capabilities, improved delivery options, and integrated in-store and online shopping experiences, allowing customers greater flexibility. Walmart has also embraced automation and AI across its supply chain and customer service operations, enhancing efficiency and the customer experience.The company’s omnichannel approach allows customers to shop seamlessly across platforms, utilizing conveniences like curbside pickup, same-day delivery and in-store order fulfillment.  This flexibility strengthens customer loyalty and captures the ongoing shift to online shopping, evidenced by a 21% increase in global e-commerce sales in the second quarter of fiscal 2025. Major retailers like Target TGT and Costco COST have also been benefiting from their efforts to step up the omnichannel game. Walmart’s expansive store network and diversified product offerings form the core of its operations, bridging in-store and online sales channels. The company’s focus on essentials and its "Everyday Low Price" strategy attract budget-conscious consumers, especially during economic downturns and inflationary periods when shoppers prioritize value. This strategy fuels consistent revenues, particularly within its U.S. food and consumables segments, where repeat purchases drive steady, dependable income.Walmart’s diversification beyond traditional retail has also played a pivotal role in its growth. The company has explored new revenue sources, such as advertising. Walmart’s health and wellness division is another notable growth area, with strong sales of GLP-1 drugs contributing to its comp sales gains, adding diversity to its revenue streams. Walmart’s international operations, particularly in markets like Mexico (Walmex), India (Flipkart and PhonePe) and China, are pivotal to its long-term growth strategy. Walmart’s skill in tailoring its business strategies to each market while leveraging its global scale is a key element of its international success.Robust Cash Flows Enable WMT’s Shareholder RewardsWalmart’s strong financial base has enabled it to provide consistent returns to shareholders. The retail powerhouse has a remarkable history, raising its dividends for 50 consecutive years, underscoring the company’s financial strength and ability to generate substantial cash flows. In the six months ending July 31, 2024, Walmart generated an operating cash flow of $16.4 billion and a free cash flow of $5.9 billion.Over this period, Walmart distributed $3.4 billion in dividends and repurchased $2.1 billion in shares. As of the second quarter, the company had $14.5 billion remaining under its share repurchase program. Walmart’s dividend payout ratio is currently 35%, with a dividend yield of 1%. With an annual free cash flow return on investment of 7.5%, Walmart is well-equipped to sustain its dividend payouts.Walmart’s Outlook Appears BrightWalmart’s unwavering commitment to its strategic drivers, along with efforts to make the most of the significant holiday season, keep it well-positioned for growth. For fiscal 2025, the company anticipates consolidated net sales growth of 3.75-4.75% (at constant currency). The consolidated operating income is projected to grow by 6.5-8%, and adjusted earnings per share (EPS) are expected in the range of $2.35-$2.43.Has the Recent Jump in Stock Price Made WMT Expensive?Walmart’s current market valuation is stretched compared to its industry peers. WMT’s forward 12-month price-to-earnings (P/E) ratio is 31.57, surpassing the industry average of 29 and is also very close to its five-year high of 31.68. This overvaluation implies that investors are potentially paying a premium for Walmart’s stock relative to its anticipated earnings performance. WMT’s Value Score of C underscores these worries. The company’s lofty valuation is concerning in light of the near-term challenges.Image Source: Zacks Investment ResearchDecoding Walmart's StrugglesWhile Walmart is distinguished for its everyday low prices, continuously reducing prices could harm its profitability, especially if costs increase in the future. The retailer has been making significant investments in supply-chain automation, e-commerce and advanced technologies. Although these investments are essential for long-term growth, they come with considerable capital expenses and operational costs that might impact short-term profits.The company also faces fierce competition from e-commerce powerhouses like Amazon AMZN, especially in the marketplace sector. Though Walmart’s marketplace and fulfillment services grew by more than 30% in each of the last four quarters, keeping pace with competitors requires heavy ongoing investments, which could pressure profitability.Concerns about economic stability, driven by inflation, pose a challenge for Walmart. These conditions dampen consumer confidence and reduce discretionary spending, affecting non-essential product categories in Walmart’s offerings. Though the company is well-placed for fiscal 2025 and the long term, its modest growth targets for the third quarter reflect a cautious approach to the volatile backdrop. The company projects third-quarter sales growth between 3.25% and 4.25%, operating income growth of 3% to 4.5% and EPS of 51-52 cents.Investors’ Guide to WMT StockWalmart continues to demonstrate strength through its diversified operations and effective omnichannel strategy, driving notable gains in its stock performance. While the company is well-positioned for future growth, investors should remain mindful of its lofty valuation and potential challenges, including economic volatility and cost pressures. Maintaining positions in Walmart's stock seems prudent, allowing investors to capitalize on its long-term growth potential while navigating near-term uncertainties. The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Target Corporation (TGT): Free Stock Analysis Report Walmart Inc. (WMT): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks