This Controversial Move Could Unlock More Growth for Walmart

When a company is as large as Walmart (NASDAQ: WMT), it can be challenging to find new ways to grow its core business. It can get leaner and improve efficiency, but driving more revenue growth within its stores isn't all that easy. That's why you'll often see the company grow its sales by just low-to-mid single digits.

There's one intriguing and controversial growth opportunity the company may be able to take advantage of, however, and that's digital pricing. Not only could it improve efficiency by making it easier to update prices, but it could also make it easier to raise prices. It has consumers concerned that it may lead to surge pricing.

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Digital prices are coming this year

Walmart is in the midst of rolling out digital pricing, and it expects that by the end of the year, every store in the U.S. will have it in place. For Walmart, it can be an effective way to lower costs and save time for its workers. Consumers and regulators, however, worry that it could lead to surge pricing, making it easier for the retailer to raise prices quickly, perhaps temporarily, when demand is high.

Although the company says that isn't the purpose of digital pricing, many people see it as a possible gateway to surge pricing. If it were to deploy temporary price hikes, that could help the big-box retailer take advantage of spikes in demand and quickly adapt to changing market conditions, with the added flexibility to change prices back just as quickly.

It's a development that's worth watching because if Walmart does deploy some form of surge pricing in the future, it could help enhance its margins and lead to better growth numbers.

Is Walmart stock worth buying today?

Walmart's stock has risen by more than 50% over the past 12 months, with many investors seeing it as a safe haven investment to hold on to amid uncertainty. But in the process, that has pushed its valuation up, and the stock now trades at a price-to-earnings multiple of 46, which is a hefty premium for a business that generates just modest growth.

Even if Walmart deploys surge pricing, the effect likely wouldn't be significant on its overall growth rate. However, it could still lead to greater efficiency and slightly better margins in the long run. Walmart's pursuit of growth and constant improvement makes it a top stock to hold for the long haul. But if you're buying the stock at its current levels, just be aware that at least in the short term, the returns may not be terribly high given its inflated valuation.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.