Walmart Stock Surged After Announcing Earnings. Here's Why Investors Should Not Be Impressed.

Core Insights - Walmart's stock surged following its Q1 fiscal 2025 earnings announcement, driven by persistent demand for value, but much of the income gains stemmed from noncore business activities, raising concerns about sustainability [1][2] Financial Performance - In Q1 fiscal 2025, Walmart reported revenue of $162 billion, a 6% increase year-over-year, with a 1% benefit from an extra selling day and a 21% growth in e-commerce [2] - Operating income rose by 10% to $6.8 billion, while net income reached $5.1 billion, significantly influenced by a swing from a $3 billion loss in the previous year to a $794 million gain in other investments, contributing to a 205% increase in yearly income growth [2] Market Position and Valuation - Compared to the S&P 500, Walmart has underperformed over certain time periods, with a P/E ratio of 33, which is higher than Target and above its five-year average of 31 [3] - Walmart maintains a competitive edge over online retailers like Amazon due to its omnichannel strategy, with 90% of Americans living within 10 miles of a store [4] Dividend and Long-term Investment - Walmart's forward dividend yield stands at approximately 1.3%, reflecting a 9% increase from the previous year, benefiting long-term investors, especially those who have held the stock since its first dividend in 1974 [4] - The most significant gains have been for long-term holders, who have seen substantial returns from both stock appreciation and rising dividends [5]