Beyond Low Prices: Is the Retail Giant Now Too Expensive?

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Normally, sexy names like Nvidia or Tesla lead the markets higher.

But last week, it was good ‘ol Walmart (WMT) with banger earnings.

The Bentonville behemoth beat top and bottom line estimates, with total sales climbing 5.0% YoY and 4.1% in the U.S.

Shares ended last week up over 7% after the company raised its fiscal year 2025 sales outlook to 3.75%-4.75% revenue growth.

Unsurprisingly, search volume from financial pros surged. However, it was lighter than we would have expected for the gains in the stock.

It makes us wonder whether Walmart’s shares are too expensive.

Walmart’s Business

Founded in 1962 by Sam Walton, Walmart has grown from a single discount store in Arkansas to a global powerhouse known for its “Everyday Low Prices” strategy.

As the world’s largest retailer, Walmart operates over 10,500 stores in 19 countries, serving 255 million customers weekly through its extensive network of supercenters, discount stores, and e-commerce platforms. 

The company’s vast product range includes groceries, apparel, electronics, home goods, and more. 

Recently, it expanded into healthcare, financial services, and digital advertising, leveraging its massive scale and customer base.

Walmart segments its business into the following areas:

• Walmart U.S. (68% of total revenues) – Includes supercenters, discount stores, neighborhood markets, and e-commerce operations in the United States.
• Walmart International (18% of total revenues) – Encompasses retail operations in 18 countries outside the U.S., including Mexico, Canada, and China.
• Sam’s Club (14% of total revenues) – Operates membership-only warehouse clubs across the U.S. and select international markets.

Source: Walmart Q2 2025 Investor Presentation

E-commerce helped Walmart’s margins continue to expand, with its gross profit rate hitting 24.4% in the latest quarter. Operating expenses fell QoQ from 20.8% to 20.6%.

This helped improve adjusted EPS from $0.61 to $0.67 YoY for the quarter.

Unlike consumer discretionary companies like McDonalds or Starbucks, Walmart says they haven’t seen a pullback in consumer spending. This puts them in a great spot with inflation finally receding.

Financials

Source: Stock Analysis

Despite its size, Walmart continues to improve sales at or over 5% annually while maintaining gross margins.

At the same time, its e-commerce push has helped it slowly improve operating and profit margins.

Walmart has also managed to keep its debt load to 1.4x EBITDA, with total debt just above $60 billion.

With free cash flow of just under $8 billion, the company has plenty of coverage for its 1.13% dividend and smaller yield share buybacks.

Valuation

Source: Seeking Alpha

Walmart’s latest run emphasizes its premium price.

Its stock trades at 31x forward earnings, twice most of its peers, and the second most expensive behind Costco (COST).

This is true of its price-to-cash-flow ratio as well.

Dollar General’s (DG) stock does come close to matching Walmart on an enterprise value to EBITDA basis. But that only serves to highlight Dollar General’s 3.4x debt to EBITDA ratio, more than twice Walmart’s.

Growth

Source: Seeking Alpha

Next to Costco, no other retailer in this group has shown sales growth like Walmart.

And it’s not just a recent phenomenon. The company has kicked out over 5% on average for the last five years.

Meanwhile, Walmart has seen its free cash flow margins decline over the past few years, whereas only Kroger (KR) saw improvement.

Profitability

Source: Seeking Alpha

Walmart’s margins aren’t the best. But they’re pretty darn good.

However, because it focuses on commodity sales like food and gas, its margins are naturally lower than those of Target (TGT).

Yet, the free cash flow margin could be better, especially when you look at Costco’s performance.

Our Opinion 5/10

While Walmart is performing at the top of its game, shares are simply too rich to like at these prices.

Across most of its ratios, from P/E to price-to-cash flow, the stock trades at a 25% premium to its 5-year average.

Paying over 17x cash for a low-growth company, even one as excellent as Walmart, isn’t where we want to put cash to work.

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