Walmart (NYSE: WMT) wowed investors in 2024 with a staggering 71.9% surge in stock price, making it the second-best performer in the Dow Jones Industrial Average, just behind Nvidia. As the retail behemoth gains ground, the question on everyone’s mind is whether Walmart can carry this momentum into 2025.
A Transformative Year for Walmart
Over the last five years, Walmart navigated a labyrinth of challenges, from the COVID-19 pandemic to inflation and weakening consumer spending. However, its performance in 2024 marked a turning point, driven by bold investments and a renewed focus on value and convenience.
Capital expenditures skyrocketed as the company poured resources into e-commerce platforms, AI-driven operational improvements, and the subscription-based Walmart+ service. These efforts paid dividends, bolstering Walmart’s appeal to a broad spectrum of consumers, from budget-conscious shoppers to those seeking premium convenience.
The data tells a compelling story:
- Record revenue and profits: Walmart’s total revenue reached new highs in 2024, signaling a triumphant recovery from a period of stagnation.
- Market dominance: While competitors like Dollar General and Target grappled with declining margins, Walmart captured market share across consumer staples and discretionary categories.
Earnings Growth and Valuation: A Balancing Act
For Walmart, the leap from a value stock to a growth stock has reshaped its investment narrative. With 51 consecutive years of dividend increases, Walmart maintains its status as a Dividend King. Yet, its current valuation has raised eyebrows among investors.
The company’s earnings per share (EPS) for fiscal 2024 hit $1.91, marking a record high. Projections for fiscal 2025 and 2026 estimate EPS of $2.48 and $2.76, respectively. However, with a price-to-earnings (P/E) ratio of 33.3 based on its current stock price of $94.76, the valuation appears stretched.
Here’s how Walmart’s projected EPS compares with stock prices at different P/E multiples:
| Metric | Fiscal 2025 | Fiscal 2026 | Fiscal 2027 |
|---|---|---|---|
| Projected EPS | $2.48 | $2.76 | $3.04 |
| Stock Price (25 P/E) | $62.00 | $69.00 | $76.00 |
| Stock Price (30 P/E) | $74.40 | $82.80 | $91.20 |
At a P/E ratio of 30, Walmart would need to achieve significant earnings growth to justify its valuation. For the company to reach a $1 trillion market cap, substantial EPS growth or sustained premium pricing would be necessary.
Dividend Yields: A Diminished Appeal
Despite its dividend longevity, Walmart’s current yield of 0.9% pales compared to the S&P 500’s average yield of 1.2%. While a dividend increase is likely when Walmart releases fiscal 2025 results in February, the yield remains underwhelming for income-focused investors.
Walmart’s growth as a Dividend King is notable, but its rapid stock price increase has made it less attractive for those seeking high-yield returns. For context:
- A $1 trillion market cap would require Walmart to generate EPS of $3.56 at a 35 P/E ratio or $4.98 at a 25 P/E ratio—figures far above current projections.
Better Alternatives for Investors
Investors seeking a balance of growth and income might find better opportunities elsewhere. Companies like Broadcom, Visa, and Alphabet offer strong growth potential alongside robust dividend increases, outpacing Walmart’s relatively low yield.
Walmart’s 2024 surge underscores its resilience and market adaptability. However, the stock’s valuation leaves little room for error, making it a less compelling option for new investors. The company remains a powerhouse, but its sky-high price and moderate growth prospects suggest caution is warranted.
