Last year, I was vocally bearish on traditional retail giant Walmart (NYSE:WMT). WMT stock was being awarded a growth multiple. But, the company was still growing at a rather anemic rate and was stuck in the low-growth brick-and-mortar retail market. As such, I felt a collapse in Walmart’s valuation and WMT stock was imminent.

That collapse happened. In 2018, WMT stock has fallen from $110 to $80 as reality has weighed on what was a super-charged valuation.

But, now that WMT stock is languishing in the $80 range, I am starting to build a bull thesis on the stock. This bull thesis incorporates one big mental shift I have made since last year: Walmart is actually turning into a growth company.

I know it sounds silly. Walmart is a $500 billion-plus revenue business growing revenues at a sub-3% rate and with stagnant operating margins. The company has also been around forever. Thus, further growth in the traditional brick-and-mortar retail market, which the company already dominates, is limited.

But, Walmart is rapidly expanding its business, leading me to believe that the company is indeed turning into a growth company. For all intents and purposes, I actually think Walmart will look a lot like Amazon (NASDAQ:AMZN) in a few years. That means Walmart will have a robust ecosystem that includes physical retail operations, online retail operations, a streaming service, and much more.

Here’s a deeper look.

Walmart Is Turning Into Amazon

Let me be clear. Walmart will never be Amazon at Amazon’s scale. But over the next several years, Walmart will start to look more and more like Amazon in that the company will build an ecosystem surrounding its retail operations.

First off, rumors are starting to spread that Walmart is planning to a build a content subscription streaming service that would rival Netflix (NASDAQ:NFLX) and Amazon. The platform will look and act just like Netflix and Amazon Video. It will presumably have its own slate of original content, and will be priced much cheaper, at $8 per month.

Secondly, Walmart has a robust and rapidly growing e-commerce business. Granted, that business only owns about 4% of the U.S. e-commerce market. But, that business is also rapidly expanding. Most recently, Walmart launched a same-day and next-day grocery delivery service in New York.

Thirdly, Walmart is partnering with Microsoft (NASDAQ:MSFT), a rival of Amazon in the cloud space, through various technology initiatives, the most recent of which includes a multi-year partnership in which Walmart will use Microsoft technology to “power functions that could include algorithms for purchasing and sales-data sharing with vendors.”

Across the board, it is easy to see how Walmart is transforming its company from a low-growth, brick-and-mortar retail giant, to a blended-growth, omni-channel retail company with various technology growth aspects.

That sounds a lot like Amazon to me. As such, I think it is safe to say that Walmart is turning into a growth company.

Walmart Stock Is Undervalued for a Growth Company

The big thing here is that as Walmart transitions from no-growth to growth, WMT stock will be re-rated as a growth stock. That means a higher multiple, and a higher stock price.

Overall, I really don’t see the company adding much firepower over the next five years through a streaming or delivery service. But thereafter, the company can start to build an Amazon Prime-like ecosystem that includes streaming services, favorable delivery and pricing, and other perks. The prospects of Walmart creating an Amazon Prime-like ecosystem will excite investors, and force a re-rating of the stock.

As such, I’m largely maintaining my call for Walmart to do about $6.90 in earnings per share in five years. But as opposed to the market-average 16X forward multiple, I think WMT stock will trade at a growth-average 20X forward multiple due to potential super-charged growth prospects through streaming subscriptions, Prime-like subscriptions, and more.

A 20X forward multiple on $6.90 in earnings per share implies a four-year forward price target of $138. Discounted back by 10% per year, that equates to a present-day value in the mid-$90s.

Bottom Line on WMT Stock

Through various initiatives — including building out delivery services, partnering with Microsoft, and plotting a streaming service — Walmart is gradually turning into a growth company. This transition will force the market to re-rate WMT stock with a higher multiple, and that gives this stock some serious firepower from current levels — the present forward earnings multiple is just 18.

As of this writing, Luke Lango was long WMT and AMZN.