In recent years, Walmart (NYSE:WMT) stock has turned from representing a discounter catering to the lower half the income demographics, to attracting customers of all incomes.
Whether in the bottom 10% or top 10%, more people are shopping at Walmart because of its focus on low prices combined with its strong omnichannel retail experience.
“We are not just a play for value anymore,” TheStreet.com reported Chief Financial Officer John David Rainey’s recent comments. “And convenience matters to someone irrespective of what your paycheck is, irrespective of what your income level is. And we expect that to be durable. We don’t expect that to change.”
The beauty of Walmart’s business model is that the low-income shopper is unlikely to stop shopping there. There are few better alternatives for them. However, the company is gaining market share of those making over $100,000. The number of households making this amount and considering Walmart has risen by 340 basis points in one year to 54.0%.
Here are three reasons Walmart’s prospects have never been better.
WMT Stock Is Reasonably Priced
Investorplace’s Joey Frenette recently discussed three undervalued long-term stocks to buy in July. WMT stock was one of them. He reasoned that a trailing price-to-earnings ratio of 30.1 was warranted given the magnet it’s become for shoppers of all kinds.
The reality is that Walmart has the kind of buying power to keep its supplier costs low enough to be able to pass on the savings to its customers. We once bought our cat litter at the local Canadian Tirevhere on Canada’s east coast.
Now, Walmart’s the place to go when Petsmart’s not having a sale. The amount of money that Walmart has taken from Canadian Tire is mind-boggling.
Consider the two stocks’ valuations.
Walmart’s enterprise value is $633.39 billion, 15.64x its earnings before interest, taxes, depreciation and amortization. Canadian Tire’s EV/EBITDA isn’t much lower at 11.30x.
Considering Canadian Tire’s same-store sales declined 1.6% in the first quarter while Walmart’s Q1 2025 same-store sales in the U.S. rose 3.8% on top of a 7.4% increase in 2024.
The valuation gap should be higher.
Its Ad Business Is Just Getting Going
In Q1 2024, Walmart Connect, its global ad business, grew 24% year-over-year with a 26% increase in the U.S. Walmart Connect saw an 19% increase in the number of advertisers in the first quarter.
Thanks to its $2.3 billion acquisition of Vizio, a smart TV maker, its ad business is about to get even busier.
“The deal brings over the smart TV maker’s advertising solutions and over 500 direct brand relationships. Vizio is also known for wielding a valuable data set that helps track what viewers are watching, which will now sit behind Walmart’s walled garden,” MarketingDive contributor Peter Adams wrote in May.
Walmart is just scratching the surface when it comes to advertising.
In the past three years, Walmart’s grown its global ad revenue from $2.1 billion in 2021, to $3.4 billion in 2023. That’s a compound annual growth rate of 27.2%. If it keeps this up for the next three years, its annual ad revenue should clock in around $7 billion by the end of 2026.
Even for Walmart, that’s not chump change.
Its E-Commerce Business Is Thriving
As it reported in Q1, its global e-commerce business grew by 21%, with 22% growth in the U.S. and 19% internationally. Its U.S. e-commerce business contributed 280 basis points of its 380-basis-point increase in U.S. same-store sales growth.
In 2023, Walmart’s e-commerce business reached $100 billion in annual sales. If it were an independent company in the S&P 500 it would be a leader based on revenue.
The beauty with Walmart’s e-commerce business is that it followed the ship-from-store model Best Buy (NYSE:BBY) implemented under former CEO Hubert Joly’s masterful turnaround of the electronics retailer.
CEO Doug McMillon mentioned as much in the Q1 2024 conference call.
“Walmart U.S. also delivered better-than-expected growth with comp sales up 3.8% including strong e-commerce growth of 22% led by store-fulfilled pickup and delivery marketplace and advertising,” McMillon said.
There is no point in having a retail footprint as large as Walmart’s and not taking advantage of it to get orders to customers more quickly.
Walmart’s is a fine-tuned machine. It’s an obvious buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.