Walmart (NYSE: WMT) was nothing short of a juggernaut last year, skyrocketing 75% and claiming a top spot in the S&P 500, second only to Nvidia (NASDAQ:NVDA) in the Dow. And it’s not done yet: the stock has tacked on another 7% in 2025, while the broader market stumbles. What’s fueling the fire? Impressive execution across in-store operations, booming e-commerce, and rapid Walmart+ delivery. On the surface, it’s a retail dream.
But here’s the catch: Walmart trades at 41x earnings and 21x free cash flow. Flip that, and you get a paltry 4.7% cash flow yield. For comparison, Amazon—yes, the king of cloud, ads, and everything e-commerce, trades at a lower multiple and is growing revenue nearly twice as fast. So yes, Walmart has scale, strategy, and Wall Street’s affection. But at $96 per share, this is a premium valuation chasing a growth story that simply isn’t keeping pace. And when the growth doesn’t live up to the hype? That’s when gravity kicks in. See Buy or Sell Walmart stock?
Walmart is often viewed as a recession-proof stock, but history paints a more nuanced picture. During the 2008 global financial crisis, its shares fell nearly 27%. In the early stages of the Covid pandemic in 2020, they dropped 17%. And in 2022, amid surging inflation and consumer pressure, Walmart stumbled again with a 26% decline. Hardly bulletproof—yet today, the stock trades at a premium valuation.
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What’s Driving the Premium?
Management is pinning its hopes on high-growth verticals like e-commerce, advertising (Walmart Connect), memberships, and marketplace expansion. And the numbers are impressive: global e-commerce sales up 22% (in Q1), ad revenue up 31%, and ultra-fast delivery now reaching 95% of the U.S. population. The company also turned a profit in e-commerce in Q1’26—a significant milestone.
But the broader picture is less thrilling. Gross margins improved by just 12 basis points, and while customer transactions rose 1.6% in Q1, outpacing peers like Target (NYSE: TGT), that growth marked the fourth consecutive quarter of deceleration. Walmart’s lofty valuation hinges on the expectation that its emerging segments will soon translate into significant profit expansion.
What’s Next?
Despite the flashy e-commerce growth, the reality is that Walmart’s engine is far from roaring. In FY 2026, the company’s management expects 4% revenue growth, 4.5% operating income growth, and under 2% EPS growth. That’s barely a pulse for a company priced like a hyper-growth tech stock. See our analysis on Walmart’s Valuation for more details on what’s driving our price estimate for the stock.
Compounding the challenge is tariff risk. New U.S. duties on imports from countries like Costa Rica, Peru, and Colombia could push prices higher as early as June. Walmart hasn’t canceled orders but is trimming purchase volumes on potentially price-sensitive items. With one-third of its U.S. merchandise imported, and high exposure to Chinese goods, the tariff overhang remains a real threat.
Why It’s Not All Bad News
Despite valuation pressures and macro risks, Walmart’s scale gives it significant advantages. Its dominance in groceries ensures steady foot traffic, which supports broader sales of discretionary items as well. While rivals struggle with store traffic, Walmart posted a 4.5% U.S. same-store sales gain in Q1 and held firm on full-year guidance.
The company continues to expand into high-margin, high-growth areas—e-commerce, digital advertising, and global markets—positioning itself for longer-term resilience. Expensive? Yes. Fragile? Far from it.
Investing in a single stock carries inherent risks. On the other hand, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
