Walmart's 25% Rally in 2025: Evaluating the Smart Move for Next Year's Portfolio

Walmart Inc. (WMT) has delivered impressive returns, climbing 25.3% year to date, but the question for savvy investors now centers on whether current valuations still represent opportunity or signal a time to reassess positions. The stock’s outperformance against both the broader market and retail peers speaks to underlying business strength, yet elevated multiples demand a more nuanced perspective before making decisions heading into 2026.

The Valuation Reality Check

Before celebrating Walmart’s gains, it’s worth examining the numbers under the hood. Trading at a forward 12-month P/E of 39.13X — well above the retail-wholesale sector average of 35.61X — Walmart commands a premium that reflects high expectations. The comparison becomes more striking when placed against peers: Target trades at just 12.34X, Kroger at 11.75X, while Costco, another premium player, sits at 42.69X.

This valuation gap isn’t arbitrary; it reflects investor confidence in Walmart’s execution. However, it also introduces sensitivity risk. Any stumble in key growth drivers or a shift in consumer behavior could pressure the multiple, making the smart move one of careful position sizing rather than aggressive accumulation at these levels.

What’s Propelling the Momentum

Walmart’s 2025 surge is rooted in tangible business momentum across multiple fronts. The company’s U.S. operations, Sam’s Club and international markets all showed resilience in the third quarter of fiscal 2026, demonstrating broad-based strength rather than concentrated growth.

E-commerce remains the star performer, expanding 27% year-over-year, with U.S. digital sales accelerating 28% and international channels climbing 26%. Critically, delivery capabilities have become a competitive moat — 35% of U.S. store-fulfilled orders were completed within three hours, a metric that deepens customer stickiness and drives repeat transactions.

The omnichannel ecosystem is maturing rapidly. Walmart’s marketplace is gaining traction, its advertising business is expanding, and membership programs (Sam’s Club and Walmart+) are adding subscribers at record rates. New perks like OnePay and enhanced delivery speeds are driving adoption. Meanwhile, international operations continue accelerating, with Flipkart and Mexico delivering meaningful contributions despite some near-term headwinds.

Perhaps most importantly, Walmart’s profit mix is shifting favorably. Higher-margin revenue streams — advertising, membership fees, and optimized e-commerce unit economics — now account for roughly one-third of consolidated adjusted operating income. This composition change addresses a historical criticism and supports margin sustainability. Early-stage investments in automation and artificial intelligence are beginning to pay dividends in fulfillment efficiency and cost management.

The Headwinds Requiring Attention

Yet momentum masks several persistent challenges that investors pursuing a smart move should weigh carefully.

Merchandise mix continues to drag margins, as growth concentrates in lower-margin food and health categories while discretionary merchandise faces consumer hesitation. Tariffs are introducing real cost pressures into inventory management, particularly for Walmart U.S. operations. Internationally, Flipkart’s Big Billion Days timing adjustment and aggressive pricing investments in Mexico compressed segment margins in recent quarters. The pharmacy business, historically a margin contributor, faces new maximum fair pricing legislation launching in early 2026, introducing uncertainty.

Beyond these specific issues, the broader consumer environment remains moderated. While Walmart captures share across income segments, discretionary spending restraint limits upside in general merchandise categories where retailers typically expand margins. This dynamic, combined with commodity inflation, suggests that margin expansion may prove challenging despite operational leverage.

How Analysts View the Path Forward

Earnings estimates have drifted higher over the past 30 days, with consensus EPS expectations for fiscal 2026 and 2027 increasing. This suggests the analyst community views current obstacles as temporary and expects Walmart to sustain solid growth trajectories. The positive revision trend supports the bull case, though it also reflects already-high expectations baked into the current valuation.

The Smart Move for 2026

Comparing Walmart’s near-term performance against peers illustrates the decisiveness of its execution. Kroger eked out just 0.1% gains, Costco declined 4.4%, and Target fell sharply by 30% year to date. Walmart’s 25.3% advance over this same period reflects clear market preference for its growth visibility and operational competence.

However, the smart move may not be chasing further gains at these valuation levels. Instead, investors holding Walmart should consider their positions as core holdings offering durable long-term exposure to retail transformation, digital capabilities, and margin-accretive business mix shifts. For those without positions, selective entry on pullbacks or near-term margin concerns may offer better risk-reward dynamics than building stakes at current multiples.

Walmart carries a Zacks Rank of #3 (Hold), a rating that reflects this balanced perspective — acknowledging quality and momentum while respecting valuation constraints.

The investment thesis for 2026 centers on Walmart’s ability to sustain e-commerce growth, deepen marketplace penetration, and navigate margin pressures from tariffs and mix shifts. These dynamics will likely generate positive returns, but the exceptional gains of 2025 have already priced in much of the near-term upside. The smart move is positioning for the long game while maintaining realism about valuation and staying alert to any deterioration in consumer discretionary spending that could test the stock’s multiple.