Walmart (WMT) stock has registered a striking 61% rally over the past year, with last week’s selloff not enough to displace the stock from its 52-week highs. Year-to-date, the stock is up 5%. I believe WMT’s rally reflects the retail giant’s operational efficiency and broader market enthusiasm for safe-haven retail stocks during economic uncertainty. Still, even if we accept that Walmart’s growth story remains intact, its valuation seems to have run ahead of fundamentals.
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I remain bearish on WMT because the company’s latest report indicates the company is currently valued at lofty multiples, making an investment difficult to justify at current prices.
Walmart is flying high on strong financial metrics and market performance while making strategic advancements in key business areas. Both investor and analyst sentiment is also positive, with Wall Street analysts eyeing a further 15% upside in the coming twelve months. However, the stock may be due for a reversal due to bullish fatigue.
WMT Growth Fueled by Online Expansion and Advertising
Given its predictable and durable cash flow, many investors view Walmart as a safe haven investment. This was again demonstrated in Q4 results for FY2025, with revenues growing 4.1%. Moreover, its operating income jumped 8.3% thanks to operational efficiencies and the intelligent integration of its physical and digital platforms.
A big puzzle piece this quarter was Walmart’s eCommerce segment, which delivered a strong 16% growth globally. Its expanding third-party marketplace, rising ad revenue, and improved fulfillment practices were the main drivers behind this growth. I also found it noteworthy that Walmart’s store-fulfilled pickup and delivery strategy once again proved its worth, as the retail giant exhibited how to leverage its vast network of physical stores to strengthen its online presence.
Advertising revenue also popped by a remarkable 29% behind Walmart Connect in the U.S. and some strong tailwinds abroad. The company cited the acquisition of VIZIO as a potential game-changer in merging smart TV technology with Walmart’s digital ecosystem, which could meaningfully boost its retail media network’s profitability later this year.
On the home front, Walmart’s comparable U.S. sales rose by 4.6%, hinting that customers, mainly higher-income households, continue to trust Walmart regarding groceries and general merchandise. In a market where inflation is a core concern, Walmart’s ability to retain customers is key to generating sales revenues in good and bad economic conditions.
Plateauing Results Expected in FY2026
As we advance into FY2026, it’s encouraging that Walmart is poised for continued growth. Management shared they target net sales growth of 3% to 4% and adjusted operating income growth of 3.5% to 5.5%. Some of this caution is attributed to the 150-basis-point drag from the VIZIO acquisition.
Even if these targets imply a slowdown from FY2025’s more substantial 5.1% top-line growth and 8.6% operating income growth, Walmart remains optimistic about ongoing momentum in its advertising, membership, and eCommerce channels. In my view, these higher-margin channels are poised to become increasingly advantageous for Walmart as the broader retail industry navigates economic headwinds.
Walmart also announced a 13% dividend hike, its most significant increase over a decade. That’s another encouraging sign for shareholders, as it suggests management is confident regarding Walmart’s medium-term earnings outlook beyond FY2026. However, although WMT has delivered 4 consecutive years of dividend growth, its dividend yield has decreased since 2018.
A Retail Giant at Tech-Stock Multiples
But despite these positives, the main sticking point for me is Walmart’s rich valuation. The stock trades at around 35x forward earnings, based on FY2026 adjusted EPS of roughly $2.50-2.60. That is a rich multiple for a retailer that, while efficient and reliable, is posting low to mid-single-digit growth. In the past, Walmart’s price-to-earnings ratio has lingered in the low- to mid-20s range, which sounds both fair and premium enough. At 3x earnings, however, it feels more reminiscent of a tech favorite than a retail stalwart.
Yes, Walmart’s push into digital advertising and eCommerce has unlocked new revenue streams, and I see those businesses’ appeal driving margin expansion. Nevertheless, a premium like this suggests that investors might be paying too much for future growth. If market sentiment sours even a bit, or if consumer spending gets squeezed by macroeconomic pressures, the stock price could retreat significantly.
Is Walmart a Buy, Sell, or Hold?
On Wall Street, analysts love WMT. The stock carries a Strong Buy consensus rating based on 27 Buy, one Hold, and zero Sell ratings over the past three months. WMT’s average price target of $112.33 per share implies approximately 19% upside potential over the next twelve months.
Strong Growth and Risky Valuation Warrants Cautious Outlook
In summary, Walmart is on solid operational footing, showing strong growth in eCommerce, advertising, and memberships. However, its soaring stock price has pushed valuations to risky levels. While the company’s fundamentals remain strong, new investors have limited upside and face an increased risk of a downturn if market sentiment shifts. Therefore, despite Walmart’s promising future, the disconnect between price and growth requires a cautious approach.
