4 Reasons to Buy Walmart Stock Like There’s No Tomorrow

Thinking about taking a new action in Walmart (WMT 1.06%) but are you intimidated by stocks’ recent move to record highs? It’s not an unreasonable concern. It’s almost always better to buy good stocks at a discount rather than a premium if you can.

But this is one of those cases where waiting for a better price could end up costing you more than it saves. Walmart stock is moving forward as the retailer is firing on all cylinders, and it’s not likely to stop anytime soon.

If you’re wondering specifically why the world’s largest retailer is making such a big investment right now, here are the top four reasons.

1. Walmart’s large size is a distinct competitive advantage

You probably already know that Walmart is the largest brick and mortar retailer in the world. What you may not fully appreciate is just how big it is. For perspective, this company operates more than 10,600 stores worldwide, more than half of which are located outside the United States. Its next closest competitor is Kroger with its 2,750 locations, while there are just under 2,000 Aim shops.

In other words, as big as the e-commerce giant Amazon is, revenue-wise, Walmart is still bigger.

Size isn’t necessarily everything, of course. After all, big companies can be badly run too! However, Walmart is run very, very well, using its size and subsequent spending power to keep competitors in check by doing things they simply can’t afford.

2. The “ecosystem” approach to retailer revenue works

You’re probably familiar with the term “omnichannel,” but if not, it’s just a term used to describe how retailers blend their online and in-store shopping environments into a seamless consumer experience. It’s a phrase, however, that no longer accurately describes how smarter retailers like Walmart interact with shoppers. More and more, the industry is creating new ways for consumers to buy goods without even thinking about it; shopping with a certain chain store simply becomes part of a lifestyle.

Yes, Walmart’s membership-based Walmart+ program is an example of this lifestyle ecosystem. While the company didn’t mention a specific number of employees, it reported double-digit percentage growth in paying members, leading to a 14.4% year-over-year increase in its membership revenue. And with Walmart+ members enjoying free shipping and delivery, it makes sense that the 22% year-over-year increase in e-commerce revenue was largely driven by this convenience-seeking crowd.

It’s not just about providing more convenience, though. Walmart monetizes its ecosystem in other ways as well. For example, the company now allows its sellers and suppliers to pay to promote their products sold through Walmart.com. The high-margin revenue of this advertising business grew 26% year-over-year and 30% in the United States. The retailer also recently launched an effort to acquire the television brand Visionwhich presents another platform from which to directly interact with and advertise to consumers. As of the most recent count, Vizio reported more than 18 million accounts/active users of its television. It will be interesting to see all the ways Walmart ends up interacting with them.

Its enormous brick-and-mortar presence, of course, reinforces the use of its online and out-of-store offerings.

3. Walmart is (finally) appealing to high-income households

Before the COVID-19 pandemic, wealthy households weren’t exactly regular Walmart shoppers. Then he practically intervened. Once inflation started to rise in 2021, even households earning over $100,000 a year were forced to start thinking about their budgets. Not only was Walmart more likely to offer what these consumers needed, but it was more likely to offer it at a better price. Over the next several years, the retailer regularly touted market share gains among this demographic.

Still, inflation eventually subsides, leaving investors to wonder whether these newly won customers will continue to shop with the discounter.

Some won’t, of course. But with everything Walmart does to keep this crowd around, many of them probably will.

Take as an example the company’s review of the in-store presentation of some of its clothing lines. For decades, its sales floors looked more like warehouses than a department store. Not anymore though. Seasonal and theme-based visual displays (clothed mannequins, entire room layouts on surfaces, branding backdrops, etc.) are now the norm, harkening back to the glory days of traditional department stores, showcasing brands and products on demand.

It’s not just more compelling in-store presentations. The retailer also adds high-end brands to the mix. Reebok and Chaps are both recent premium additions to the chain’s clothing lines, for example. Premium wines are another once-unlikely addition to its store shelves, which draw the high-end crowd.

4. Walmart is resilient, regardless of the economic context

Walmart’s business is well protected regardless of the economic environment we are in. Of course, that’s largely because over half of its revenue is food-related. After all, people must eat regardless of the cost to do so.

Even taking the mandatory nature of most of Walmart’s revenue out of the question, the retailer can face challenges. More than 10% of its top line comes from health and wellness products, while around 25% of its sales come from general merchandise that in theory may be economically sensitive, consumers will always need basic items such as socks, office supplies, towels, baby clothes, light bulbs and the like. No other retailer beats Walmart’s prices on such items.

Or, think so. Not once in 2017 has Walmart failed to produce better quarterly earnings than a year ago. That includes late 2021 and early 2022, when the world was emerging from the pandemic that drove the company’s incredibly strong sales growth just a year earlier.

Keep everything in perspective

To be clear, investors shouldn’t expect too much. Walmart will never be a high-growth stock like, say, Nvidia or Alphabet. Last quarter’s top-line growth of just under 5% is in line with the company’s likely long-term norm. There is only so much money consumers are willing and able to spend, no matter how strong or weak the economy, just as there are only so many places Walmart can profitably set up shop.

On the other hand, don’t convince yourself of a solid investment simply because Walmart’s stock is up as much as it is now or because the company itself lacks vibe. You don’t invest for excitement. Invest for plausible growth. As much as every portfolio needs a certain amount of stability and predictability, this name offers plenty of both and will likely continue to do so well in the future.