Walmart Stock: Buy or Sell? | WMT Stock Analysis

In recent years, Walmart has done a great job closing the gap between itself and Amazon. In 2026, however, entering the year, I looked at the company's valuation and its prospects, and it looked too expensive. Now, after half of the year is gone and the company has reported several updates, I wanted to revisit and decide if it's now a good buying opportunity for Walmart. >> I want to thank The Motley Fool for sponsoring this video. Visit fool.com/part Kev for the 10 best stocks to buy now. >> You can see the price action here for Walmart stock. It's been volatile. It's put investors on a roller coaster ride, but year-to-date, it's relatively flat. It's up 0.83% compared to the S&P 500 index, which is up over 10%. But, albeit with Walmart stock, you're getting a less risky investment compared to the average stock in the S&P 500. And I mentioned over the last few years, and over the last decade, for that matter, Walmart has done a great job closing its gap between its operations and Amazon's. Uh for the better part in the first half of the 2010s, Amazon was taking significant market share away from Walmart. Walmart was hesitant to invest in e-commerce. But since Walmart really stepped into those investments, the business has done really well, and revenue has soared up to $725 billion in the trailing 12-month period. However, those investments have come at a price, and its operating profit margin has steadily trended downward over the previous decade. Not by all that much, but there wasn't much to work with to start with, right? Walmart never really operated with strong profit margins. In fact, if you remember, Walmart founder and CEO, former CEO, Sam Walton, told his employees one year that if they achieved a 6% operating profit margin, he would do a dance and the company did achieve a 6% operating margin and he did deliver on that promised dance. If you want to check that out, I'm sure it's available somewhere on YouTube. And so, this is not a high margin industry to begin with and so, Walmart's operating margins have fallen from around 4 and 3/4% in 2017 down to about 4.16% in the most recent trailing 12-month period. Its returns on invested capital have been improving after those initial declines. It hit a bottom of about 4 and 1/2% return on invested capital in 2019, but since then, it's been increasing. In the most recent update, it totaled 13.8% and while this is not a remarkable number, it's well above the company's weighted average cost of capital, so it is delivering on shareholder value for every dollar that it's reinvesting back into the company. And this is an extremely capital-intensive business. Walmart operates more than 10,000 physical locations worldwide and then it has the warehouses, the logistics, the fulfillment, the trucks, the planes, etc. to transport and deliver its products to consumers worldwide and to its distribution centers and to its stores. So, it's a very capital-intensive industry and that capital intensity has only increased in recent years as it's now not only doing a massive physical footprint where it's selling products to consumers in physical stores, brick-and-mortar locations, but it's also now operating an expansive digital network where it's also selling products to consumers online and delivering products to people's homes. And so, it's so, so capital-intensive and to be able to do this effectively at this large scale is a very difficult achievement, and one that Walmart has done very effectively in recent years, and has earned the respect of a lot of stock market investors, including myself. I mentioned Walmart's valuation as the primary reason why I did not recommend this as a buying opportunity at any point here in 2026. And you can see at at the beginning of the year it was trading at a forward price to earnings of above 40. That was even more expensive than Amazon, right? And Amazon is not operating any brick-and-mortar locations, and is generating much better growth on the top line, and much better profitability on the bottom line, and yet Walmart was trading at a more expensive valuation. Now, that valuation has improved, but it's still at a relatively expensive forward price to earnings of 34. Now, for a company where investors would be happy with a mid-single-digit revenue growth rate, and operating profit margins, investors would celebrate if it would get to 6%. I don't think that kind of business you know, you could argue, but I for me, I don't think that kind of business deserves a forward price to earnings ratio in the 30s. I would like to see a forward price to earnings ratio with a two in front of it if I would upgrade, if I would be interested in buying Walmart stock. All that being said, I mentioned low relatively slow growth rates, and relatively low profit margins, but what is very strong with Walmart is the competitive advantage. Its operations, and its low-cost provider status, very difficult to replicate. I don't think any other business can replicate what Amazon has delivered to customers for decades. And in that way, it can at least defend its business model and has demonstrated it can defend its business model even against a company like Amazon. I also like to look at valuation on a discounted cash flow basis and Walmart looks expensive even measuring on a DCF basis. So at $112 per share it's well above the fair value estimate I calculated at $55. So regardless of how I measure Walmart stock, it still looks too expensive for me. It's a great business one that I would like to own in my portfolio at some point, but not at these levels, not at these valuations. I would wait for a considerable drop in Walmart stock price or continued improvement in the business before I can upgrade to a buy or before I would be interested in buying.