3 Reasons to Buy Walmart Stock Like There's No Tomorrow

Walmart (NYSE: WMT) stock is the second-best-performing investment in the Dow Jones Industrial Average this year. That result might seem strange given that the retailer isn't nearly as profitable as the AI-powered tech giants that have dominated headlines in the past year.

Walmart does have exposure to some attractive tech spaces, of course. But it is still a retailing stock, with all the limited growth and earnings opportunities that come with operating in that competitive sector. Still, the stock looks attractive, even following its market-thumping rally through most of 2024. Let's look at three reasons why.

1. Walmart is serving more customers

Walmart is serving more customers this year, with shopper traffic up 3% in the third quarter compared to a year earlier. That's great news for any large retailer. Target, by contrast, expanded traffic at a 2.4% rate for the same period.

Yet it's arguably more important that Walmart is catering to a wider demographic these days. Sure, most people still visit its stores seeking the best bargains, especially following the last few years of inflationary price spikes.

But Walmart is now attracting higher-income shoppers through its e-commerce platform. That division this year crossed $100 billion in annual sales and expanded at a healthy 27% rate this past quarter. "In-store volumes grew, pickup from store grew faster, and delivery from store grew even faster," CEO Doug McMillon said in mid-November.

2. Walmart is making more cash

Walmart's competitive advantages are translating into some major financial wins for investors. Cash flow and profitability are both rising thanks to factors that go beyond just market share gains. Walmart is making money on its e-commerce segment, for example, after over a decade of aggressive infrastructure spending. Price cuts and inventory slimming have paid off as well.

COST Cash from Operations (TTM) data by YCharts

Complementary revenue streams like digital advertising are helping boost profits, too. Overall, operating earnings are up 9% over the past nine months, which is fantastic for a business that's generating almost $700 billion of revenue each year.

3. Despite an elevated valuation, Walmart can still benefit its investors

You will have to pay a premium to own a stock that's doing so much right. Walmart shares today are priced at roughly 1.1 times revenue, well above the valuation of 0.6 times revenue that investors have been used to seeing for years. Costco Wholesale is valued at a much steeper 1.7 times sales, though. Sure, Walmart lacks the warehouse giant's faster growth and its much larger membership fee income, but that valuation gap still leaves room for patient investors to profit from here.

Don't forget about the direct cash return portion of those profits, either. Walmart, a Dividend King, has been boosting its dividend for 51 consecutive years and its ample cash flow points to many more years of growth ahead. Management also has room to spend cash on stock buybacks, even following aggressive investments in things like store remodels. Over the last four quarters, the company has repurchased $4.6 billion of its stock.

Walmart stock won't be an excellent fit for every portfolio, of course. If you're more interested in high-growth, high-profit companies, then you might want to look at other sectors outside of physical retailing. But for investors seeking an attractive balance between growth, income, and security, there's every reason to consider stocking up on the biggest player in this space.

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Demitri Kalogeropoulos has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.