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Where will Walmart’s stock be in three years?

Walmart (NYSE:WMT) is one of the few big-box retailers to survive the rise of Amazon (NASDAQ: AMZN) and other e-commerce platforms from the past twenty years. Instead of closing its stores to cut costs, Walmart stayed relevant by renovating its stores, matching Amazon’s prices, expanding its e-commerce marketplace, and using its physical stores to fulfill its online orders. It also expanded its delivery capabilities and rolled out its own subscription services.

Over the past three years, Walmart shares are up more than 30% S&P500 advanced 22%. But will it continue to beat the market over the next three years?

A concept for a new Walmart delivery truck.A concept for a new Walmart delivery truck.

Image source: Walmart.

What has happened to Walmart in the last three years?

Walmart grew rapidly during the pandemic as consumers stocked up on essential products. The investments in e-commerce also paid off as consumers stayed home and bought more products online.

In fiscal 2021 ending January 2021, revenues rose 6.7%, driven by Walmart’s 8.6% US Comps growth (including a 79% jump in e-commerce sales), Sam Club’s comps growth of 11.8% and up 1%. in its international net sales.

But in fiscal 2022, Walmart’s domestic growth cooled as the pandemic subsided. Its international operations also shrank as it shed some of its weaker banners in Japan, the United Kingdom, Brazil and Argentina. However, the three core businesses stabilized and recovered throughout fiscal 2023 and 2024, even as inflation slowed consumer spending and reduced its gross margin.

Metric

Financial year 2022

Financial year 2023

Financial year 2024

Total revenue growth

2.4%

6.7%

6%

Walmart US Comps Growth

6.4%

6.6%

5.6%

Walmart international net sales growth

(16.8%)

0%

10.6%

Sam’s Club Comps Growth

9.8%

10.5%

4.8%

Adjusted earnings per share growth

17.9%

(2.6%)

5.7%

Data source: Walmart. Comps growth excludes fuel, international sales excludes forex.

Walmart’s U.S. prices continued to rise as it expanded its grocery business, sold more food and consumables, retained more customers on its Walmart+ subscriptions and expanded its e-commerce services and generative AI product search tools.

Sam’s Club also kept up Costco (NASDAQ: COST) in the warehouse club market, and the banner continues to open new domestic and foreign warehouses. Meanwhile, its overseas business returned to growth as it shed divestments and benefited from double-digit growth from its Indian e-commerce subsidiary Flipkart.

What are Walmart’s long-term growth strategies?

Looking ahead, one of Walmart’s key growth strategies is to acquire more Walmart+ subscribers — who spend nearly twice as much as non-members — to broaden its position against Amazon’s Prime. Walmart already offers free delivery and discounts to these subscribers, and recently added streaming videos Decisive+ (NASDAQ: PARA) to those plans. The company is also in the process of acquiring a smart TV maker Vizio (NYSE: VZIO) to challenge Amazon’s Fire TV set-top boxes and smart TVs.

Walmart also plans to introduce more private label products to strengthen gross margins, limit dependence on third-party brands and differentiate itself from other retailers. Moreover, it expects its international business to continue to grow – led by Mexico, China and India – as it expands its overseas e-commerce markets.

Walmart’s operating margin fell to 3.3% in fiscal 2023 from 4.5% in fiscal 2022 as it sold a higher mix of lower-margin products and struggled with inflationary headwinds. But in fiscal 2024, the operating margin rose to 4.2% as the country reined in its spending. It plans to continue cutting costs until the macro environment improves.

What will happen to Walmart in the next three years?

Just over a year ago, Walmart set a long-term goal of achieving 4% sales growth and operating income growth of more than 4% over the next three to five years.

The company expected to achieve that stable growth by automating more than half of the processing volumes in its fulfillment centers by the end of fiscal 2026, building or converting 150 new locations by fiscal 2029 and remodeling hundreds of existing stores. Here’s what analysts expect will happen to Walmart if it implements these strategies over the next three years:

Metric

Financial year 2025

Financial year 2026

Financial year 2027

Sales growth

4.3%

3.9%

4.3%

Operating margin

4.3%

4.4%

4.6%

EPS growth

22.3%

10%

12%

Data source: Marketscreener.

We should take these estimates with a grain of salt, but they suggest that Walmart will continue to grow at a slow but steady pace. Based on these expectations, Walmart stock trades at 26 times forward earnings. Goal (NYSE: TGT)which grows more slowly has a lower forward multiple of 18.

Walmart’s stock isn’t cheap, but I believe its resilience, stable growth rates and clear plans for the future justify its higher valuation. If it continues its current growth trajectory, it could easily beat the S&P 500 over the next three years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool holds positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.

Where will Walmart’s stock be in three years? was originally published by The Motley Fool