Walmart's Shares Outperformed the Market in 2024; Will They Maintain this Performance in 2025?
In 2024, retail titan Walmart's shares soared an impressive 72%, marking the company's best year for stock performance since 1998. Beat that, S&P 500's 23% gain! And guess what? This stunning surge outpaced even the staggering performance of the broader market.
So, what's behind this dazzling run? You'd be right in guessing it's Walmart's surging operating income. Since the start of 2023, this critical metric has seen a notable improvement, as illustrated in the following chart.
Curious as to why this money machine's been humming along? Looking for some insight? Look no further than Walmart's third-quarter 2024 earnings call, where CEO Doug McMillon shed some light on the situation.
What McMillon had to say? Well, global e-commerce sales went through the roof, up by a whopping 27%. Advertising revenue also saw a notable boost, with a growth rate of a staggering 28%. Membership income was no slouch either, with a healthy rise of 22%. Add it all up and it's clear that these three factors are driving Walmart's profits skyward.
But just how are these three components helping Walmart in its march to success? Let's delve a little deeper.
Start with Walmart's membership program, Walmart+, launched back in 2020. It's been a hit, with subscriber numbers skyrocketing in a major way. According to financial publications like PYMNTS, the program had amassed an impressive 60 million subscribers by September 2022, with further growth continuing at a double-digit clip since then.
Walmart+ users who opt for online pickup or home delivery are also contributing to the e-commerce explosion. And third-party sellers on the platform are making Walmart's online marketplace even more lucrative, as they forgo a piece of their revenue to be part of the action. Top it all off with a healthy dose of advertising revenue, and it's easy to see how Walmart's digital business is thriving.
But is this digital growth engine set to slow down? Not a chance, at least that's what McMillon and the data seem to suggest. Walmart's ad, e-commerce, and membership income were all up by more than 20% in the third quarter, indicating that this growth surge is showing no signs of abating.
So, is Walmart stock now priced to perfection? Maybe, but maybe not. Looking at a 10-year price-to-earnings (P/E) ratio chart, the shares have averaged a P/E ratio of 28. That's the same P/E valuation for the S&P 500 right now, according to YCharts.
As the chart illustrates, Walmart is now priced higher than its historical average, and higher than other S&P 500 stocks. But that's not necessarily a cause for concern, given Walmart's better-than-average profit growth. Right now, it's justified.
The real question, then, is whether profit growth will continue to outpace revenue growth in 2025 and beyond. And the answer to that, based on the current data and McMillon's optimistic outlook, is… well, let's just say it's looking mighty promising for investors.
In conclusion, Walmart's tremendous digital growth, driven by e-commerce, advertising, and membership income, is helping to fuel its operating income and soaring stock price. With profit growth still strong and showing no sign of slowing down, it's looking like Walmart stock will continue to outperform the S&P 500 in the near future. Now, that's a growth story worthy of applause!
This impressive stock performance by Walmart in 2024 could attract interest from investors looking to diversify their finance portfolios through investing in robust companies. With e-commerce sales soaring by 27%, advertising revenue growing by 28%, and membership income rising by 22%, Walmart's finance strategy appears to be yielding positive results.
