Walmart has surprised plenty of investors lately. Over the past five years, its share price has climbed 129%, an outstanding run that has actually outpaced gains posted by its two biggest industry rivals, Amazon and Costco, over that same stretch. 

Brokers from Fonndure dive into this topic, noting that despite this impressive performance, the stock currently trading around $108 may not be the buying opportunity it appears to be at first glance.

That combination of strong momentum and a rich valuation makes this a good moment to pump the brakes rather than rush in.

Why the Bar Is Set Uncomfortably High

Walmart’s recent rally has been driven in part by genuine valuation expansion, with its price-to-earnings (P/E) ratio rising from 33.1 five years ago to 38.1 today. This shift reflects increasing investor confidence in the company’s underlying business strength and growth profile.

That confidence is supported by substantial earnings improvement. Walmart’s diluted earnings per share surged 107% from Q1 2022 to Q1 2027, marking a sharp turnaround from the previous five-year period, when earnings were largely flat.

Together, these trends suggest that the stock’s performance is not purely sentiment-driven. Instead, stronger fundamentals, particularly accelerated earnings growth, have played a central role in justifying the higher valuation multiple, even as investors continue assigning a premium to the company’s scale, resilience, and execution..

Investors Are Paying a Steep Premium

Even with Walmart’s improved growth trajectory, its current valuation appears stretched. The stock now trades at a 49% premium to the broader S&P 500, signalling that investor expectations have risen significantly relative to the overall market.

More notably, Walmart is currently valued at a higher multiple than Alphabet, despite the latter delivering faster profit growth and benefiting from stronger, more scalable competitive advantages. This creates a clear mismatch: investors are effectively paying more for a slower-growing business.

That trade-off is difficult to justify on a fundamental basis. While Walmart’s operational execution has improved, its growth profile still lags behind leading technology peers, making the elevated valuation harder to sustain over time. 

Unless earnings continue to accelerate meaningfully, the risk of multiple compression becomes increasingly relevant, particularly if broader market sentiment weakens.

The Growth Outlook Doesn’t Fully Justify the Price

Walmart’s projected earnings growth remains solid, with EPS expected to increase at a 12% compound annual rate from fiscal 2026 through 2029. For a company generating $176 billion in quarterly net sales, that represents a healthy and credible growth outlook, particularly given its scale and maturity.

However, valuation remains the sticking point. At roughly 38 times trailing earnings, the stock is priced at a level that typically implies faster or more durable growth than 12% annually. In practical terms, investors are paying a premium multiple without a proportionate acceleration in earnings, which compresses the margin of safety.

This imbalance suggests that much of the expected growth is already priced in, leaving limited room for upside surprises. If execution falters or growth moderates even slightly, the risk of valuation compression increases, making the current risk-reward profile less compelling despite the company’s strong fundamentals.

What Would Make This Stock Worth Buying

None of this means Walmart is permanently off the table. The smartest move right now is adding it to a watchlist rather than buying immediately, waiting for a more attractive entry point to emerge.

Walmart’s wide economic moat, built on tremendous scale advantages, allows it to secure merchandise at favorable costs and sustain permanently low prices that keep attracting shoppers across every income level. 

The company has also found real success diversifying revenue through growing e-commerce sales and its Walmart+ membership program, a direct rival to Amazon Prime that generates recurring subscription income.

The Bottom Line for Prospective Buyers

Valuation ultimately comes down to perspective, but a pullback in Walmart’s P/E multiple toward the 25 range would likely represent a far more compelling entry point, especially given the company’s strong fundamentals, scale, and consistent execution. 

At that level, investors would be paying a more reasonable price relative to its growth outlook, improving the overall margin of safety.

The challenge, however, is timing. Whether or when such a valuation reset occurs remains uncertain, particularly if the market continues rewarding defensive, high-quality names with premium multiples.

For now, the more disciplined approach is patience. Waiting on the sidelines allows investors to avoid overpaying, while keeping the company on a watchlist for a more attractive entry point. When valuation and fundamentals align more favourably, Walmart could become a significantly more appealing long-term addition to a portfolio.