Walmart(NYSE:WMT) is coming off an incredibly strong 2024. The stock price rose over 70% and easily outperformed S&P500 and the return of 24%. And with the increase in value, that has pushed the valuation to a market cap of about $730 billion.
Below, I’ll look at how likely Walmart stock is to join the $1 trillion club in 2025, based on its fundamentals, growth prospects, and valuation.
Walmart’s performance over the past year was not exceptional; sales haven’t skyrocketed into double digits as if it were another hot growth stock. But simply finding ways to grow sales by single-digit percentages is impressive these days, as many retailers have fought to retain customers. Rising costs are distracting people and even discount retailers are struggling.
However, Walmart has been a resilient retailer. Much of it is likely to be a convenient one-stop shop for consumers, who appreciate being able to buy groceries and daily essentials in one place. And because discount retailers may even have to raise their prices due to inflation, consumers may no longer see any benefit in visiting their local dollar store, while the savings compared to Walmart may be negligible or non-existent.
Through the first nine months of fiscal 2025 ending Oct. 31, Walmart’s sales rose more than 5% to $500.4 billion. The company’s operating income also rose nearly 9% to $21.5 billion during the period. These aren’t numbers that will make it the next big growth stock, but the stability of Walmart’s results is what could grab investors’ attention these days.
Additionally, a catalyst to watch for is the impact the recent acquisition of TV maker Vizio could have on its business. Walmart completed the deal in early December and gives the company a way to reach customers through Vizio’s SmartCast platform, which has more than 19 million active accounts. It’s a big opportunity for Walmart to expand its advertising business into streaming and generate more sales.
A potential barrier to the stock’s growth could be Walmart’s valuation. Any time a stock rises that much so quickly, it inevitably trades at a premium. Currently, Walmart stock trades at 37 times earnings. Here’s how that compares to some other top retail stocks.
WMT PE ratio data according to YCharts
Walmart’s stock is near the top of this group, with Costco Wholesale it is the only one for which investors pay a higher premium.
The question for investors is whether the premium is justified. On the one hand, the company is growing steadily, profits are rising, and has an exciting new growth opportunity thanks to the Vizio acquisition; on the other hand, it doesn’t generate the kind of growth investors would expect for a stock trading at such a high earnings multiple. I think Walmart deserves a bit of a premium, but the bullishness in the markets has brought it to a price tag that may be a bit too high at this point.
For Walmart to reach a market cap of $1 trillion, the market would need to rise 37% from current levels. That would probably mean another strong year in which the market outperforms by a large margin. While the company still has plenty of growth potential, barring a substantial increase in earnings this year, investors will likely have to pay an even higher multiple for Walmart’s stock to reach its $1 trillion valuation. That’s ultimately why I don’t think this is the case. will happen in 2025.
If you’re a long-term investor, you can still do well by buying shares of Walmart today and just hanging in there. It is a quality investment and there is much more growth to come. But I think the market is in for a bit of a slowdown, and while Walmart shares have had fantastic performance over the past year, I wouldn’t be surprised to see much milder returns over the next twelve months.
Consider the following before buying stock in Walmart:
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Best Buy, Costco Wholesale, Home Depot, Target, and Walmart. The Motley Fool has a disclosure policy.
Can Walmart Stock Reach a $1 Trillion Market Cap by 2025? was originally published by The Motley Fool
