Retail is evolving, with e-commerce sales projected to hit $7 trillion by 2028. 

Walmart (WMT), traditionally focused on its physical stores, has pivoted to online growth, especially in grocery. 

This e-commerce shift, along with its growing marketplace and high-margin advertising segment, has boosted Walmart’s sales and profitability. 

However, the stock’s high price reflects lofty market expectations, with the market projecting Walmart’s ROA to nearly double. 

While Walmart’s e-commerce and digital expansion signal a promising future, investors should weigh the premium price of its stock.

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Retail is changing fast. E-commerce sales are expected to reach $7 trillion by 2028, capturing nearly a quarter of all global retail. 

Younger shoppers want more convenience and personalized service, and online options like marketplaces and click-and-collect are meeting that demand. 

But traditional stores still matter; they provide a real-world experience that online shopping can’t replace.

For retailers, success means balancing both. A strong online presence draws customers in, but a well-managed physical space keeps them connected to the brand. 

The key isn’t just selling online, it’s creating a smooth, unified shopping experience that ties everything together.

Historically, Walmart’s (WMT) strategy focused on its well-placed brick-and-mortar stores, which serve as distribution hubs and facilitate cost-effective shipping and pick-up options.

Recognizing the potential of e-commerce, the company has been investing heavily in its online platform. 

This shift has driven a notable increase in Walmart’s total sales, which have grown approximately 5% annually over the past five years.

Despite being a newcomer to online retail compared to giants like Amazon (AMZN), Walmart’s e-commerce market share has steadily risen, particularly in categories like groceries, where it now holds a commanding lead over competitors.

The company’s grocery segment alone has cemented its status as a go-to retailer for essential goods, giving it an advantage that extends into the digital marketplace.

Although still trailing Amazon, Walmart’s online sales have been growing at a faster rate than most other retailers, driven by its focus on convenience and value. 

The company’s online grocery market share, for example, stands at nearly 27%, surpassing Amazon’s 18.5%, giving it a commanding presence in an essential category.

Walmart’s marketplace, which has grown to over 150,000 sellers, adds another layer to its e-commerce expansion. 

While this is small compared to Amazon’s marketplace, which includes millions of sellers, the company’s platform remains competitive by focusing on quality control and seamless customer experience. 

A steady growth in third-party sellers helps Walmart diversify its offerings without significantly increasing inventory costs.

Furthermore, the company’s advertising segment, though relatively new, is a strong growth driver of revenue growth. 

This segment leverages Walmart’s extensive customer data and scale to provide targeted advertising options for brands.

As advertising is a high-margin business, it contributes positively to the company’s overall profitability, offering an avenue for growth that is both sustainable and scalable.

With digital ads integrated into Walmart’s online ecosystem, the company has successfully capitalized on the shift toward online shopping. 

Unfortunately, the stock is already too expensive and the expectations are too high.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market expects the company’s Uniform return on assets ”ROA” to rise to around 17%, almost doubling.

Walmart’s transformation story shows that even well-established companies can adapt.

With continued focus on e-commerce, advertising, and marketplace expansion, Walmart’s future remains bright. 

However, investors should be mindful of the premium they are paying for the company’s growth potential.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research