Back in 2015, retail bears were proclaiming the death of Walmart (NYSE:WMT) at the hands of Amazon (NASDAQ:AMZN). Walmart stock had dropped from $90 in early 2015 to $55 by late 2015 as its growth slowed amid rising competition from Amazon. Bears said the writing was on the wall. WMT was doomed, and Amazon would continue to drive Walmart stock lower.
The Bears Were Wrong
Those bears were dead wrong.
Although Amazon was killing WMT in 2015, the bears missed the fact that Walmart wasn’t just sitting on its hands and letting Amazon kick it to the curb. Instead, Walmart was adapting. It built a robust e-commerce platform. WMT also expanded its omnichannel commerce capabilities, added new product categories, digitized its stores, enhanced its value proposition, and even jumped into streaming services.
In other words, Walmart became more Amazon-like. The results speak for themselves. Walmart stock bottomed in late 2015 around $55. Ever since, WMT stock has roared higher and has not looked back. Today, Walmart stock trades hands for nearly $100.
The reason to buy Walmart stock now is that the company’s transition to becoming more like Amazon is far from over. As long as this transition persists at a healthy rate, Walmart will continue to successfully defend its share against Amazon and take the share of other retailers in new markets, enabling Walmart stock to head higher.
Walmart Is Becoming More Amazon-Like
Over the past three years, Walmart has built a massive e-commerce business, complemented that business with omni-channel capabilities like delivery and pick-up, and expanded into new product categories like groceries to become a true one-stop-shop.
By taking these steps, Walmart dramatically improved its growth profile, sparking a long-term rally in Walmart stock.
Walmart Is Outperforming Amazon
On the retail front, Walmart just reported its best quarter in terms of comparable sales growth in over a decade. Moreover, its e-commerce sales rose by 40% year-over-year. On the other hand, Amazon’s online sales rose just 12% last quarter, while its revenue from providing services to third-party sellers increased 36%. Thus, Walmart’s e-commerce business is definitely growing faster than Amazon’s e-commerce business.
This outperformance should persist. Walmart controls less than 4% of the e-commerce market. Considering the company is rapidly expanding its capabilities in a number of areas, including grocery pick-up and delivery, it is likely that Walmart’s e-commerce market share will increase meaningfully over the next several years.
Meanwhile, WMT is making a huge jump into streaming. There were rumors that it might launch its own streaming service to compete with Amazon’s Prime Video and Netflix (NASDAQ:NFLX). Those rumors might not be true. But Walmart did recently partner with MGM to create content for Vudu, the video-on-demand service which Walmart bought several years ago. That could be a step towards creating a Walmart subscription service that would rival Amazon Prime.
In the big picture, when you look at things such as pick-up/delivery and digital ecosystem, Walmart is still in the early stages of becoming more Amazon-like. That is a good thing for Walmart stock.
Walmart Stock Will Head Higher
Walmart’s decision to emulate Amazon has two major financial implications.
First, WMT will be able to defend its retail market share against Amazon and hold its own as the world’s largest retailer for the foreseeable future. Two, Walmart will be able to grow in new markets like groceries, streaming, and potentially even subscriptions, adding multiple growth drivers to WMT stock and making its growth outlook more favorable.
Right now, Walmart stock is struggling because of tariffs and rising interest rates, which both threaten equity valuations and U.S. economic expansion. But it seems premature to conclude that economic growth will slow tremendously Meanwhile, Walmart stock trades at just 20 times the company’s forward earnings.
In other words, the risks aren’t that big. But with the upcoming holiday period looking promising due to the backdrop of unprecedented consumer strength, WMT stock can rise significantly. Walmart stock isn’t all that expensive, and it has reached $100 and up before. Thus, if WMT’s holiday numbers are good, Walmart stock could easily rally towards $100 and higher in a hurry.
Longer term, because of its reasonable valuation and healthy fundamentals, Walmart stock will head higher as long as this company continues to become more Amazon-like.
As of this writing, Luke Lango was long WMT and AMZN.
