3 Reasons Walmart Is a Must-Buy for Long-Term Investors

It's easy to feel anxious when reading the news about the stock market. With discussions about tariffs, persistent inflation, and the looming threat of a recession, concerns can easily arise.

However, taking a long-term perspective is crucial. While market volatility can be unsettling, predicting short-term market movements is virtually impossible. Investing in robust companies, even through turbulent times, usually pays off for shareholders in the long run.

Walmart (WMT) has established itself as a leading retailer over many years. While retail is a competitive field, Walmart continues to thrive. Here are three compelling reasons to consider adding Walmart to your investment portfolio.

1. A Well-Executed Simple Business

Cost control is a focus for many businesses, but it is deeply embedded in Walmart’s culture. Since launching its first discount store in the early 1960s, Walmart has prioritized low costs, allowing it to offer low prices to customers.

As a result, it's challenging for competitors to match Walmart's pricing. It's no wonder that the retailer attracts over 250 million shoppers weekly across its stores and online platforms.

The effectiveness of this strategy is reflected in Walmart’s financial performance. During the most recent fiscal year, which ended on January 31, the company reported revenues exceeding $680 billion, an increase of 5.6% after adjusting for foreign currency fluctuations. Its adjusted operating profit also rose by 9.7% to $29.7 billion.

2. Drawing in Customers

While past performance doesn’t guarantee future success, Walmart finds itself in a favorable position for ongoing growth.

Walmart's low prices consistently draw customers, particularly during economic downturns like the current inflationary climate. In the fourth quarter, same-store sales in the U.S. segment increased by 4.6%, with over half of that growth—specifically, 2.8 percentage points—coming from increased foot traffic. This highlights Walmart's ability to gain market share against competitors while attracting higher-income shoppers.

In times of economic uncertainty, with factors like rising tariffs and potential recessions, Walmart's pricing strategy allows it to grow its customer base and increase revenue. It's one of the rare businesses that thrives financially amid challenging economic conditions.

3. Committed to Future Investments

Walmart's management does not remain complacent. They invest in technology to maintain a strong competitive position and continue to prepare for the future. This year, Walmart plans to allocate between 3% and 3.5% of its sales to capital expenditures, which is a significant amount given its total sales nearing $700 billion.

The company focuses on enhancing the customer experience by implementing features like online ordering and in-store pickup. Many locations also now offer same-day delivery, adding to customer convenience.

Additionally, Walmart has expanded into other service areas, including Walmart+, a subscription service that provides benefits such as free shipping, a streamlined checkout process, and discounts on gasoline.

With a substantial customer base, Walmart gathers a wealth of data, which it leverages in its advertising ventures. Although advertising revenue accounts for less than 1% of total annual revenue, it experienced a significant 27% growth over the last year. This could evolve into a major revenue source as the business continues to expand.

Putting the Pieces Together

Walmart's commitment to offering ultra-low prices, combined with its convenience and a management team dedicated to continuous improvement, make it a strong long-term investment.

However, it’s important to note that the current stock price reflects high investor expectations. Walmart's share price has risen nearly 39% over the past year, outperforming the S&P 500 index by approximately 20 percentage points as of mid-March.

Walmart shares trade at a price-to-earnings (P/E) ratio of 35, compared to 28 for the S&P 500. If this valuation concerns you, consider adopting a steady investment approach. By investing a fixed amount consistently over time, you can average out your purchase costs and build your investment in Walmart with a long-term perspective.

investment, Walmart, retail