Has Walmart Just Escaped Recession Fears?

While the stock market has delivered strong returns over the past two years, the broader macroeconomic picture has been murky at best.

Inflation has been abnormally high compared to historical levels. Furthermore, a series of interest rate hikes by the Federal Reserve significantly affected consumer buying activity. US jobs data was also inconsistent. Perhaps unsurprisingly, some economists and investors have been concerned that the US could be headed for a recession.

But after digestion Walmarthis (WMT 0.13%) last earnings report, I ended up tempering my own recession fears. Let’s break down Walmart’s impressive quarter and explore why the stock looks like a great buy right now.

Importance of same-store sales

One of the key performance indicators of a retail business is same-store sales. This gives you a look at how consumer purchases are trending in specific locations over time. If this value is increasing, it means that people are returning to your stores and converting to repeat buyers.

The table below details Walmart’s same-store sales in various geographic markets for the first half of the company’s 2025 fiscal year. On the surface, these numbers might look like a mixed bag. Sales are accelerating in the US and China, while Canada is somewhat flat and Latin American results have been more inconsistent.

Data Source: Investor Relations.

Consumer resilience at its best

However, same-store sales are only part of the equation. A deeper look at some of Walmart’s other operating metrics will help show how the retailer has become a top destination for consumers in this difficult economy.

When a retail business reports rising sales numbers, it’s important to understand what’s driving the increases. For example, incomes could increase only because of inflation. When this is the case, it is not necessarily a good sign for the economy. In essence, it implies that the passing on of higher prices to the consumer is the main source of growth. This model is not sustainable in the long term.

On the other hand, improving trends in transactions and unit volumes can signal that people are buying more goods from your stores. This is a good thing because it implies that shoppers may prefer your inventory selection and accept your price points.

For the fiscal second quarter ended July 26, Walmart US generated a 3.6% year-over-year increase in transactions, while the average shopping cart increased 0.6%. Additionally, at the company’s subsidiary, Sam’s Club, transactions were up 6.1% year-over-year.

Walmart attributed the increase in transactions and average ticket to unit growth in produce and meat, personal care and beauty products, increased pharmacy sales and some food-related inflation.

To me, this is a pretty solid picture overall. While some of that growth is inflation-adjusted, Walmart’s operating metrics suggest that customers are becoming repeat shoppers and buying more of their necessities from the company.

Image source: Getty Images.

Is Walmart a good stock to buy right now?

The chart below illustrates Walmart’s forward price-to-earnings (P/E) ratio over the past year. Investors can see that in the last few months in particular, the company’s stock has seen a dramatic expansion in valuation.

WMT Data PE Report (before) by YCharts.

In contrast, the S&P 500’s forward share/profit has fallen from a high of 28.5 earlier this year to a current level of 21.7. This dynamic paints a really interesting picture. Investors appear to have become more bullish on Walmart, while at the same time becoming less bullish on the broader market.

It’s hard to say whether falling readings for the S&P 500 suggest an outright recession. However, this normalization may suggest that some investors are anticipating an economic slowdown. At the end of the day, it’s too hard to say for sure whether a recession is coming or not.

I believe Walmart has demonstrated its ability to acquire and retain large cohorts of customers from many different demographics and geographies. This should help the company gradually unlock the path to new customer loyalty over time, which will help strengthen its position as a leading consumer goods retailer.

For these reasons, I see Walmart as a great long-term buy during this period of economic uncertainty, and I think the company will continue to thrive — whether or not there’s a recession.