Are you considering taking a new interest in Walmart (NYSE: WMT) but intimidated by the stock’s recent surge to record highs? It’s not an unreasonable concern. It’s almost always better to buy good stocks at a discount rather than a premium, if possible.
However, this is one of those cases where waiting for a better price can end up costing you more than it saves. Walmart stock is rising because the retailer is firing on all cylinders, and that’s not likely to stop anytime soon.
If you’re wondering why the world’s largest retailer is such a good investment right now, here are the top four reasons.
1. Walmart’s sheer size is a clear competitive advantage
You probably already know that Walmart is the largest physical store in the world. What you may not realize is just how much bigger it is. For reference, the company has over 10,600 stores worldwide, more than half of which are outside the United States. Its closest competitor is Kroger with its 2,750 locations, while there are just under 2,000 Goal shops.
In other words: as big as the e-commerce giant Amazon is that Walmart is still bigger in terms of turnover.
Of course, size isn’t everything. After all, big companies can be run badly too! But Walmart is run very, very well, using its size and the resulting spending power to keep competitors in check by doing things they simply can’t afford to do.
2. The retailer’s revenue “ecosystem” approach works
You’re probably familiar with the term “omnichannel,” but if you aren’t, it’s simply a term used to describe how retailers are merging their online and physical store environments into a seamless experience for consumers. However, it’s a phrase that no longer accurately describes how savvy retailers like Walmart are engaging with shoppers. Increasingly, the industry is creating new ways for consumers to purchase goods without even thinking about it; shopping at a particular retailer is simply becoming part of a lifestyle.
Yes, Walmart’s subscription-based Walmart+ program is an example of this lifestyle ecosystem. While the company didn’t cite specific headcounts, it did report double-digit growth in paying members, leading to a 14.4% year-over-year increase in membership revenue. And since Walmart+ members enjoy free shipping and delivery, it makes sense that the 22% year-over-year growth in e-commerce revenue last quarter was largely driven by this convenience-seeking crowd.
It’s not just about providing more convenience, though. Walmart is monetizing its ecosystem in other ways, too. For example, the company now allows its vendors and suppliers to pay to promote their goods sold through Walmart.com. Revenue from the high-margin advertising business grew 26% year-over-year in the most recent quarter, and 30% in the U.S. The retailer also recently launched an effort to boost its television brand Visionwhich provides another platform to directly connect with — and advertise to — consumers. At most recent count, Vizio reported more than 18 million active accounts/users of its television. It will be interesting to see in what different ways Walmart ultimately connects with them.
The store’s enormous physical presence naturally encourages the use of the online and offline offering.
3. Walmart is (finally) attractive to high-income households
Before the COVID-19 pandemic, affluent households weren’t exactly regular Walmart shoppers. Then came the practical side of things. As inflation began to rise in 2021, even households earning more than $100,000 a year had to rethink their budgets. Walmart not only offered what these consumers needed sooner, it offered it sooner at a better price. In the years that followed, the retailer regularly touted its market share gains among this demographic.
However, inflation is finally slowing, leaving investors wondering whether these new customers will continue to shop at the discounter.
Some certainly won’t. But given everything Walmart is doing to keep this crowd, many probably will.
Take, for example, the overhaul of the in-store presentation of several of its clothing lines. For decades, sales floors looked more like warehouses than department stores. Not anymore. Seasonal and theme-based visual presentations (dressed mannequins, entire room setups on platforms, branding backdrops, etc.) are now the norm, a nod to the glory days of traditional department stores by showcasing desirable brands and goods.
It’s not just about more appealing presentations in-store. The retailer is also adding higher-end brands to the mix. Reebok and Chaps, for example, are both recent premium additions to the chain’s clothing lines. Premium wines are another once-unlikely addition to the store’s shelves that appeal to the upscale crowd.
4. Walmart is resilient regardless of economic conditions
Walmart’s business is well protected, regardless of the economic environment we find ourselves in. Granted, that’s largely because more than half of its sales are related to groceries. After all, people have to eat, regardless of the cost.
Even if we ignore the must-have nature of the majority of Walmart’s revenue, the retailer still faces challenges. More than 10% of its top line comes from health and wellness products, while about 25% of sales come from general merchandise, which in theory While it may be economically sensitive, consumers will always need basic products such as socks, office supplies, towels, children’s clothing, light bulbs and the like. No other retailer beats Walmart’s prices on such items.
Or think about it this way. Not once since 2017 has Walmart managed to generate quarterly revenue that was better than its year-ago comparison. That includes late 2021 and early 2022, as the world emerged from the pandemic, which produced incredibly strong revenue growth for the company a year earlier.
Keep it all in perspective
To be clear, investors shouldn’t expect too much. Walmart is never going to be a high-growth stock like, say, Nvidia or Alphabet. The just under 5% revenue growth in the latest quarter is in line with the company’s likely long-term norm. There’s only so much consumers are willing and able to spend, no matter how strong or weak the economy, just as there are only so many places Walmart can profitably put a store.
On the other hand, don’t talk yourself out of a solid investment just because Walmart stock has risen as much as it has, or because the company itself doesn’t have much juice. You’re not investing for excitement. You’re investing for plausible growth. As much as any portfolio needs stability and predictability, this name offers plenty of both, and likely will continue to do so.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley holds positions at Alphabet. The Motley Fool holds positions at and recommends Alphabet, Amazon, Nvidia, Target and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
4 Reasons to Buy Walmart Stock Like There’s No Tomorrow was originally published by The Motley Fool
