Better Stock to Buy Now: Walmart or Dollar Tree?

Key Points

• Walmart's comparable store sales, e-commerce, and advertising growth combine to form a powerful catalyst for the business.

• Dollar Tree is improving after selling Family Dollar, but tariff pressures remain.

• Walmart trades at a premium on Wall Street compared to Dollar Tree, but for good reasons.

• 10 stocks we like better than Walmart ›

Walmart (NYSE: WMT) and Dollar Tree (NASDAQ: DLTR) shares have both surged over the past year, standing out in a choppy economy with their value-focused retail models. Each company has delivered solid results for shareholders recently, but their investment cases rely on very different strengths. Walmart, the scaled and tech-driven retailer with supercenters, Sam's Club, and a fast-growing e-commerce platform, is increasingly leaning on higher-margin businesses like advertising and membership. Dollar Tree, known for its $1.25 price point and expanding assortment of items at higher (but still value-oriented) price tiers, has sharpened its focus by selling Family Dollar and putting its leadership and capital squarely behind the Dollar Tree brand.

But which retailer is ultimately a better buy? The higher-valued, scaled Walmart or Dollar Tree, which has a cheaper valuation and likely has more room to grow?

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Walmart's balanced engine

Walmart is more than a low-price superstore today. The grocery and essentials base keeps traffic steady through cycles, while faster-growing profit pools are lifting earnings quality. E-commerce, for instance, continues to expand at a strong double-digit clip, helped by marketplace volume and delivery, and advertising through Walmart Connect is scaling far faster than total revenue. Those businesses carry higher margins than the core retail mix, so even moderate top-line growth can translate into healthier operating income over time.

Recent results support that trajectory. Walmart's fiscal second-quarter U.S. comparable sales increased in the mid-single digits, e-commerce rose roughly 25%, and advertising growth far outpaced the company average, growing 46% year over year. Membership also deepens loyalty across formats, including Sam's Club. Put together, the flywheel looks durable: a dependable traffic base, improving mix, and growing services layered on top.

Walmart has the balance sheet and cash generation to keep investing in automation, store remodels, and last-mile capabilities. That steady reinvestment is why the market assigns a premium price-to-earnings ratio of 38 at the time of this writing. A valuation like this assumes continued progress on higher-margin engines, but the company's recent performance suggests that assumption is reasonable.

Dollar Tree's focused discount strategy

Dollar Tree is a simpler company after selling Family Dollar, and that matters. The chain's promise is straightforward: a well-known $1.25 base price that draws traffic, plus a growing selection of items at higher price points to broaden the assortment and lift margins. The aim is not complexity -- it's better unit economics per store.

There are early signs of traction. Same-store sales recently rose in the mid-single digits on both higher traffic and larger baskets, and gross margin edged up as freight costs eased and pricing flexibility improved. Management is also putting money into what customers notice: store upgrades, better in-stock conditions, and higher wages to reduce turnover. Those actions increased SG&A near term, but they are the right levers to strengthen the brand and raise conversion.

But there are some real risks, namely tariffs. As Dollar Tree CEO Mike Creedon put it in the company's second-quarter earnings call: "Tariffs remain a source of ongoing volatility and operating in an environment where rates change frequently remains one of our largest challenges." But if store upgrades and the expanded price ladder keep working, operating margin has room to improve from here -- even in the face of tariffs.

The verdict

Valuation context tilts the decision but does not overturn the fundamentals. Walmart trades at a higher price-to-earnings multiple than Dollar Tree, which trades at a P/E of about 20 as of this writing. But Walmart's premium reflects its scale, cash flow stability, and the rapid growth of advertising and marketplace -- catalysts setting up the company for a more durable and predictable growth story than Dollar Tree's. Yes, Dollar Tree may offer more upside if its higher price tiers help bolster margins and if the company successfully navigates tariffs. But that path depends on external dynamics and outstanding execution in store upgrades and price points.

Given these tradeoffs, Walmart looks like the better buy today. The cash-generative core, accelerating higher-margin profit pools, and broad-based e-commerce strength provide a cleaner bridge from growth to earnings -- with fewer macro dependencies. Dollar Tree is worth watching as a focused, post-divestiture value retailer, but its business is more susceptible to disruption from tariff policies and more scaled competitors like Walmart.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.