



Walmart's stock has outperformed this year





Discount store Walmart's stock has surged over 27% year-to-date, which is marginally better than the returns on the S&P 500 index.





Walmart's shares have surged on the back of improving business and a burgeoning e-commerce division, which has been propelled by the online grocery sales.





Walmart's key metrics have been improving





The retail giant reported its Q3 fiscal year 2020 (quarter ended October 2019) earnings last month. Walmart generated revenue of $127.99 billion, growing 2.48% from the same quarter last year.





Walmart's US same-store sales continues to grow at a solid rate. During the third quarter of the current fiscal year, the company said that its same-store sales in the US rose 3.2% year-over-year.

















As the first graph shows, Walmart's same-store sales in the US, its most important market, has been rising over the last few years.





Walmart posted a net income of $3.29 billion during the third quarter, compared to $1.71 billion during the same quarter last year. The low base was due to the non-operating expenses Walmart incurred last year.





Walmart's top line, bottom line and same-store sales, all handily beat Wall Street estimates in the third quarter.





Walmart is pouring in resources into its online business to compete with Amazon





Meanwhile, Walmart's e-commerce business, walmart.com, is consistently seeing robust growth.





During the third quarter of its fiscal year, Walmart said its e-commerce business grew 41% year-over-year. The retail giant does not disclose the revenue from the online business.





While the e-commerce segment is growing quickly, Walmart continues to lose money on it. The company is competing with Amazon in the segment and is investing heavily in its online business.

















For example, Walmart is investing in logistics to ensure speedy delivery, to compete with Amazon.





Amazon plans to start delivering grocery products free of cost, within two hours to all Prime members in the US.





Prime members used to pay $14.99 per month for Amazon Fresh, to get access to the two-hour grocery delivery.





Walmart is now testing delivering groceries to customers in three cities. This program costs $19.95 a month. Walmart also offers over 2,700 grocery pickup locations for online orders in the US.





The retailer now offers a “Delivery Unlimited” option from 1,400 locations. This service costs $98 per year, for unlimited grocery delivery.





Walmart's investment into Indian e-commerce giant Flipkart could pay rich dividends in the long-term.





Is Walmart's stock attractive?





Overall, Walmart's business metrics have been improving over the last few years, and Wall Street expects this to continue.





Walmart's financials are in a good shape as well, with a solid return on equity, growing free cash flows and a dividend yield of 1.79%, which would look attractive if Treasury yields continue to fall again.





Walmart is a quality stock to hold if the economy goes south from here. That said, it is not extremely attractive either.





The stock trades at a multiple of 24.1 times trailing twelve-month earnings, which is slightly more expensive, relative to the S&P 500 index. For a company that is expected to grow in mild single-digits, that seems to be slightly overvalued.