Walmart (WMT -0.33%) has been ringing up the register for investors with shares returning 29% thus far in 2024. The first-quarter results from the world's largest retailer were highlighted by solid growth and expanding margins. At a time when consumer pocketbooks are stretched dealing with lingering inflation and high interest rates, Walmart is benefiting from U.S. shoppers looking for a good deal.
On the other hand, is the stock still a great value for investors at its all-time high? Let's explore why the rally may have more room to run.
A strong start to fiscal 2025
A major theme for Walmart has been the success of its omnichannel strategy. The company is finding that its customers are attracted not only to the everyday low prices across the more than 10,500 stores globally but also to the convenience of online shopping, including store-fulfilled pickup and delivery options.
Walmart's fiscal 2025 first-quarter revenue (for the three months ended April 30) increased by 6% year over year. Within that amount, global e-commerce led growth, up 21% from a year earlier.
In the U.S., comparable-store sales growth of 3.8% came in better than expected, with e-commerce contributing the bulk of that increase or 280 basis points of the total. Q1 adjusted earnings per share (EPS) of $0.60 increased by 24% from the prior-year quarter.
In terms of guidance, management now expects full-year revenue growth at the high end of the previously announced 3% to 4% target range. The company also sees EPS tracking toward the high end or slightly above the original $2.23 to $2.37 forecast announced earlier in the year, representing up to a 7% increase from fiscal 2024.
Overall, the sense is that Walmart is off to a strong start for the new year and is being rewarded by the current market rally.
Image source: Getty Images.
Walmart's e-commerce business is driving growth
Maybe the biggest development for Walmart is the ongoing shift in the business mix increasingly toward online operations. This is important for several reasons.
First, the trend has been positive for profitability. Walmart's gross-profit margin of 24.1% in Q1 climbed 23.7% in the period last year. That includes a growing advertising business as well as the Walmart+ membership, the company's answer to Prime from Amazon.
The sense is that significant investments in technology and logistics in recent years have paved an earnings runway that is expected to continue. By this measure, Walmart can be seen as generating increasingly high-quality cash flows, adding to its appeal as an investment.
Second, the omnichannel strategy and e-commerce presence are allowing Walmart to pull in a more diverse customer base, including high-income households which have driven the majority of its market-share gains.
The company's wider reach represents new growth opportunities and monetization potential over the long run compared to Walmart's traditional target demographic. This was a topic discussed by Walmart CFO John Rainey during the last earnings conference call:
We're seeing higher engagement across income cohorts with upper-income households continuing to account for the majority of the share gains... That shows that customers are coming to us and we're a consideration where we haven't been before.
Finally, there is also an implication here for Walmart's valuation. As the business continues to transform from just a big-box retailer, the future may likely hold structurally higher margins with room for an expansion of its earnings multiple and growth premium.
This dynamic helps make a case that shares of Walmart still offer good value with more upside. The stock is currently trading at approximately 28 times management's full-year EPS guidance. Notably, this is below the stock's five-year average for the multiple with a price-to-earnings multiple of 29.
Looking out into fiscal 2026, Walmart is forecast to reach an EPS of $2.68 by next year, according to the average of Wall Street estimates. This level implies a one-year forward price-to-earnings ratio of 25, which begins to appear increasingly attractive based on the company's ability to keep driving earnings higher.
WMT PE Ratio (Forward) data by YCharts.
Final thoughts
There's a lot to like about Walmart as a market leader and blue chip stock. It likely won't be a straight line upward, but I believe there's a good chance shares of Walmart will be trading higher by this time next year.
