Why Walmart Is Eating Other Retailers for Lunch

During the past year, Walmart (NASDAQ: WMT) stock has gained almost 27%, and is in a separate class from other retail stocks. The company's shares have strongly outperformed other major retailers in the past year, like Costco Wholesale (down 4.8%), Amazon (down 5.8%) and Target (down 8.9%). Walmart is also beating the performance of the State Street SPDR S&P Retail ETF, which provides exposure to 73 stocks across the broader retail sector, and is up 14% in the past year.

Why is Walmart stock doing so much better than other retailers, and will its momentum keep going? Let's look at a few big reasons why this company's shares are beating the competition in the retail industry.

WMT data by YCharts

Walmart is huge -- and still growing

Starting from humble origins as a discount store in Arkansas, Walmart is now the world's largest retailer and the world's largest consumer staples company by market cap. The company has nearly 11,000 store locations and employs about 2.1 million people. Known for its industry-leading supply chain and inventory management, Walmart strives to keep prices low for its customers by running a tight ship behind the scenes.

Image source: Getty Images.

Even though it can be hard for a large, mature company to keep growing fast, Walmart is still growing -- and profitably. On Feb. 19 the company reported quarterly revenue of $190.7 billion, up 5.6% year over year, a 10.8% year over year increase in operating income, and a 12.1% increase in adjusted earnings per share. For its latest full fiscal year, Walmart reported $713.2 billion of revenue (up 4.7%) and a gross profit rate of 24.2%.

This stock ranks among the Dividend Kings, having increased its dividend for 53 years in a row.

Going beyond consumer staples to e-commerce

Even though Walmart gets nearly 60% of its U.S. revenue from groceries, the company is much more than a supermarket. Its most important competitor is a tech company: Amazon. The e-commerce giant recently surpassed Walmart for bragging rights as the world's largest company by sales.

Walmart is working to develop innovative new strategies for e-commerce. According to its latest earnings report, the company's global e-commerce sales increased 24% in the fourth quarter year over year, and its global advertising income grew by 37%. The company is also partnering with OpenAI and Alphabet to explore artificial intelligence (AI)-assisted shopping.

It developed its own AI shopping assistant, called Sparky, to help customers shop online. On its latest earnings call, Walmart executives said that customers who use Sparky have about 35% higher average order value. If Walmart can become a leader in AI-assisted online shopping, this could give the company a strong competitive advantage.

Some investors worry that Walmart stock is overvalued, with a price-to-earnings ratio of 45. That's more richly valued than the tech-heavy Nasdaq-100 index's P/E ratio of 32.7. But if you like steady dividends and believe that Walmart will capitalize on future opportunities from AI, this stock could be a good buy for patient investors.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.