Could Walmart Become a Trillion-Dollar Company?

Key Points

• Walmart is the largest consumer staples company in the world.

• Its over $767 billion market cap is more than $350 billion larger than its next closest consumer staple peer, Costco.

• Walmart won't turn into a trillion-dollar company overnight, but it seems highly likely it will eventually grow to that size.

• 10 stocks we like better than Walmart ›

The Motley Fool just updated its report on the world's largest consumer staples companies. Walmart (NYSE: WMT) tops the list by a wide margin, with a market cap of around $767 billion. It seems inevitable that the giant retailer will eventually grow its business in the future and achieve a trillion-dollar market cap.

Here's what you need to know.

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What does Walmart do?

Walmart is a retailer, just one of two that land on the largest consumer staples list. What's interesting is that Walmart and peer Costco Wholesale (NASDAQ: COST) are the top two companies on the list. But there are some big differences between these two industry-leading retailers.

Image source: Getty Images.

For starters, Walmart's market cap is over $350 billion higher than Costco's, which has a market cap of roughly $415 billion or so. The business models are also different, with Costco focused exclusively on operating club stores while Walmart operates club stores, grocery stores, and super stores. That diversification is important, because it gives Walmart more levers to pull as it looks to expand its business. Notably, Walmart and Costco both have a global reach, but Walmart's store format options allow it to spread its wings more widely.

The best indication of Walmart's long-term success is found in its dividend history. The company has achieved the highly elite status of Dividend King, with more than five decades of annual dividend increases behind it. It clearly has a strong business model that it executed well in both good times and bad. That fact, plus the company's diversified global portfolio, suggests that slow and steady growth is reasonable to expect.

But getting bigger for the sake of getting bigger isn't the goal. In fact, Walmart actually had more stores at the end of fiscal 2016 than it does today, roughly a decade later. The retailer is focused on growing profits as well as growing its business. It is clearly willing to do the hard work to make sure each of its locations is worth having, and closing those that are not. Helping the growth along here is inflation, which pushed both prices and, in turn, the retailer's sales, higher.

Data by YCharts.

Why does Walmart's market cap matter?

Market cap is a simple math equation, multiplying a company's stock price by the number of shares it has outstanding. In the grand scheme of things, market cap isn't actually all that important for most companies. Tiny stocks can be highly risky, but once a certain scale is reached, market cap is less of an issue. Except that it does offer some bragging rights, like Walmart being able to claim that it is the largest consumer staples company on the planet.

That said, tracking market cap can help investors determine if a company is growing or not. There's a market component to the metric, so the emotions of investors have to be taken into consideration. But a company that's getting larger and larger over time, based on market cap, is likely to be growing. That's exactly what Walmart has done for decades. And yet there is a grain of salt to consider, highlighting the huge price advance of the stock over the past year or so.

In fact, for those who care about valuation along with size, Walmart stock looks a bit expensive right now. Its price-to-sales, price-to-earnings, and price-to-book-value ratios are all above their five-year averages. If valuation matters to you, this retail giant probably won't be a good fit for your portfolio. And there's a chance that the market cap could shrink if the stock price pulls back.

Think long-term with Walmart

Dividend King Walmart is not a flash-in-the-pan business; it has stood the test of time. And while it might be a bit expensive today, perhaps juicing its market cap a little bit, the company's business progress is likely to continue as reliably as it has in the past. Add in the impact of inflation, and it seems almost inevitable that Walmart will, someday, be a trillion-dollar business. While, given its valuation, you might not want to put it on your buy list today, it probably deserves a spot on your wish list. A deep pullback, perhaps during a bear market, could open up a great long-term buying opportunity in this steadily growing business.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.