It only took 15 years. But the world’s largest retailer, Walmart (NYSE:WMT), has finally matched Amazon‘s (NASDAQ:AMZN) Prime service with its own membership shopping service — Walmart+. But what does that mean for WMT stock?

Overall, many believe the newly announced Walmart+ is a reason to buy Walmart stock. After all, on the day Recode broke the news, Walmart stock surged nearly 7% higher on an otherwise red day for the market.

On its surface, that bullish thinking makes sense.

After all, membership services promote customer loyalty, which leads to higher repeat sales from customers and more revenues. Plus, Walmart can lean into its huge physical store network and lower-income demographic focus to turn Walmart+ into a fairly large service.

That’s all good news for Walmart.

However, Walmart is a huge company with low margins. It takes a lot to move the profit needle. And Walmart+ doesn’t really move the profit needle in a way that would support Walmart’s stock heading much higher than where shares currently trade.

Why? Let me explain.

Walmart+ Is a Smart Move

There’s no doubt about it. Walmart+ is a smart move.

Walmart has worked tirelessly over the past several years to catch-up to Amazon in the e-commerce world. The company has found great success in doing so. Digital sales at Walmart have consistently grown at a 30%-plus pace over the past several years, as the company has built out e-commerce functionality, expanded omni-channel capability and improved its logistics.

But, Amazon still owns the U.S. e-commerce market, with 38% market share. Walmart has less than 6% market share.

Clearly, if Walmart wants to truly rival Amazon in e-commerce, the company needs to do more.

Walmart+ is a great step in the right direction.

At the heart of Amazon’s e-commerce success is its membership program, Amazon Prime. That’s because membership services promote customer loyalty, and result in customers spending more on a specific platform. Amazon Prime customers spend, on average, twice as much on Amazon.com as non-Prime customers.

Walmart hopes to replicate that success with Walmart+.

Walmart+ Could Be Huge

Collectively, Walmart will likely find great success in building out Walmart+ for four reasons.

First, Amazon Prime is catered towards higher income demographics. Given its shopper demographics, Walmart+ will likely be catered towards lower income bands.

Second, Walmart has stores. Everywhere. 90% of the U.S. population lives within 10 miles of a Walmart store. This expansive footprint should help Walmart offer Walmart+ subscribers unparalleled delivery times.

Third, Walmart has a huge grocery business. Amazon’s grocery business via Whole Foods Market is very small compared to Walmart’s grocery business. Consequently, enhanced grocery shopping and delivery through Walmart+ could win over U.S. customers.

Fourth, Walmart already beats Amazon on price. Walmart+ also beats Amazon Prime on price. So, if Walmart+ can even just match Amazon Prime on convenience, then the new membership service could see huge adoption, especially among lower income households.

But Walmart Stock Is Fully Valued

Although I’m bullish on Walmart and Walmart+, I’m less bullish on buying stock in WMT for one very simple reason: valuation.

You have to understand. Walmart is a huge company. Like $500-plus billion in revenues huge. With tiny margins. Like ~3% net profit margins. So, even if Walmart added $50 billion in revenues, that would add just $1.5 billion in net profits, or about 10% to last year’s profits.

Thus, even if Walmart+ does grow into a huge success and leverages the membership program to grow global retail market share, the company’s profit growth prospects still aren’t that robust.

Indeed, my modeling suggests that — assuming Walmart+ grows to 50 million subscribers by fiscal 2026 — Walmart will grow revenues at a ~3% annualized pace, and earnings per share at a high single-digit pace.

Under those assumptions, I see stock holders in WMT netting $7.50 in earnings per share by fiscal 2026. For the record, that’s above consensus Wall Street estimates.

Let’s say, given a more robust retail ecosystem, Walmart is rewarded with a 25-times forward multiple in the future, versus a historically average and consumer discretionary sector average forward multiple more around 20.

Based on that forward multiple and a 10% annual discount rate, that equates to a fair fiscal 2021 price target for Walmart of $130.

That’s only a hair above where shares trade hands today.

Bottom Line on Walmart Stock

Walmart is a great company. Walmart+ will be a huge success. But that doesn’t mean Walmart is a buy here.

Instead, Walmart stock’s meteoric rally from 2016 through 2019 pushed shares into overvalued territory. The stock has been battling valuation friction ever since. Shares will continue to fight valuation friction for the foreseeable future.

Ultimately, these valuation risks will limit fundamental upside in stock in WMT.