Walmart Stock Surges 6.5% on Strong Earnings, But Valuation Concerns Linger

What happened

Walmart's stock price jumped over 6.5% to $107 after a robust earnings report, nearing its all-time high as investors cheered the performance. The report underscored solid U.S. comparable sales growth and eCommerce gains, aligning with the company's omni-channel strategy highlighted in the DeepValue analysis. DeepValue notes that retail media advertising grew approximately 30% and free cash flow remained healthy at $12.66 billion in FY2025, supporting the flywheel execution. However, the stock's valuation remains elevated with a P/E ratio around 40 and EV/EBITDA near 46, indicating much of the margin expansion is already priced in. This surge reflects short-term optimism but emphasizes the need for sustained momentum to justify current levels.

Implication

The earnings beat reinforces Walmart's ability to drive growth through its omni-channel model and higher-margin segments like retail media, which grew about 30% and supports margin expansion. However, the stock's sharp rise likely discounts future improvements, making further gains contingent on exceeding already high expectations and avoiding integration setbacks from acquisitions like Vizio. Key risks include a potential slowdown in U.S. comps or retail media growth, which could pressure the stock given its full valuation and trigger a downgrade. Investors must closely monitor free cash flow trends and gross margin leverage to assess whether the current price is sustainable. Overall, patience is advised, with any upgrade to BUY dependent on clearer signs of valuation improvement or accelerated fundamental performance.

Thesis delta

The earnings report validates the positive execution trends in Walmart's business, such as retail media growth and eCommerce strength, but it does not shift the core HOLD thesis. The stock's full valuation continues to temper risk-adjusted upside, and no immediate catalyst warrants a change in investment stance. Investors should await more evidence of sustained margin expansion or valuation decompression before considering a more bullish position.