Where Will Walmart Stock Be in 3 Years?
Walmart (NYSE: WMT) is one of the few big-box retailers that survived the rise of Amazon (NASDAQ: AMZN) and other e-commerce platforms over the past two decades. Instead of closing its stores to cut costs, Walmart stayed relevant by renovating its stores, matching Amazon's prices, expanding its e-commerce marketplace, and using its brick-and-mortar stores to fulfill its online orders. It also expanded its delivery options and rolled out its own subscription services.
Over the past three years, Walmart's stock rallied more than 30% as the S&P 500 advanced 22%. But will it continue to beat the market over the next three years?
What happened to Walmart over the past three years?
Walmart grew rapidly throughout the pandemic as consumers stocked up on more essential products. Its e-commerce investments also paid off as consumers stayed home and bought more products online.
In fiscal 2021, which ended in January 2021, its revenue rose 6.7%, driven by Walmart's 8.6% U.S. comps growth (including a 79% jump in its e-commerce sales), Sam Club's 11.8% comps growth, and a 1% increase in its international net sales.
But in fiscal 2022, Walmart's domestic comps growth cooled off as the pandemic passed. Its international business also shrank as it divested several of its weaker banners in Japan, the United Kingdom, Brazil, and Argentina. However, its three core businesses stabilized and recovered throughout fiscal 2023 and fiscal 2024, even as inflation curbed consumer spending and compressed its gross margin.
Metric | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|
Total revenue growth | 2.4% | 6.7% | 6% |
Walmart U.S. comps growth | 6.4% | 6.6% | 5.6% |
Walmart international net sales growth | (16.8%) | 0% | 10.6% |
Sam's Club comps growth | 9.8% | 10.5% | 4.8% |
Adjusted EPS growth | 17.9% | (2.6%) | 5.7% |
Data source: Walmart. Comps growth excludes fuel, International sales exclude forex.
Walmart's U.S. comps continued rising as it expanded its grocery business, sold more food and consumables, locked more shoppers into its Walmart+ subscriptions, and expanded its e-commerce services and generative AI product search tools.
Sam's Club also kept pace with Costco (NASDAQ: COST) in the warehouse club market, and the banner continues to open new domestic and overseas warehouses. Meanwhile, its overseas business returned to growth as it lapped its divestments and profited from the double-digit growth of its Indian e-commerce subsidiary, Flipkart.
What are Walmart's long-term growth strategies?
Looking ahead, one of Walmart's core growth strategies is to gain more Walmart+ subscribers -- who spend nearly twice as much as its non-members -- to widen its moat against Amazon's Prime. Walmart already offers free deliveries and discounts to those subscribers, and it recently added streaming videos from Paramount+ (NASDAQ: PARA) to those plans. It's also in the process of acquiring smart-TV maker Vizio (NYSE: VZIO) to challenge Amazon's Fire TV set-top boxes and smart TVs.
Walmart also plans to roll out more private-label products to strengthen its gross margin, curb its dependence on third-party brands, and differentiate itself from other retailers. In addition, it expects its international business to continue growing -- led by Mexico, China, and India -- as it expands its overseas e-commerce marketplaces.
Walmart's operating margin dipped from 4.5% in fiscal 2022 to 3.3% in fiscal 2023 as it sold a higher mix of lower-margin products and grappled with the inflationary headwinds. But in fiscal 2024, its operating margin expanded to 4.2% as it reined in its spending. It plans to keep cutting costs until the macro environment improves.
What will happen to Walmart over the next three years?
Just over a year ago, Walmart set a long-term goal of generating 4% sales growth and more than 4% operating income growth over the following three to five years.
It expected to achieve that stable expansion by automating more than half of the processing volumes at its fulfillment centers by the end of fiscal 2026, building or converting new 150 locations by fiscal 2029, and remodeling hundreds of its existing stores. This is what analysts expect to happen to Walmart as it executes those strategies over the next three years:
Metric | FY 2025 | FY 2026 | FY 2027 |
|---|---|---|---|
Revenue growth | 4.3% | 3.9% | 4.3% |
Operating margin | 4.3% | 4.4% | 4.6% |
EPS growth | 22.3% | 10% | 12% |
Data source: Marketscreener.
We should take those estimates with a grain of salt, but they suggest Walmart will continue to grow at a slow but steady pace. Based on those expectations, Walmart's stock trades at 26 times forward earnings. Target (NYSE: TGT), which is growing at a slower rate, has a lower forward multiple of 18.
Walmart's stock isn't cheap, but I believe its resilience, stable growth rates, and clear plans for the future justify its higher valuation. If it maintains its current growth trajectory, it could easily beat the S&P 500 again over the next three years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
Where Will Walmart Stock Be in 3 Years? was originally published by The Motley Fool