Outside of Nike and Lululemon, we haven't touched retail much. And given how those businesses have done since we first pitched them, you can probably understand why we haven't gone hunting for more businesses in an admittedly tough industry.

But there are some very large retailers that I think have competitive advantages beyond just “the brand” that could make them even more compelling. Today we’ll be looking at Walmart, a business I’ve shopped at plenty of times, but one I’ve never really thought too hard about as an investment.

Walmart is a very good business, and I don’t think many people would argue with me on that. But a good business doesn’t always make a good investment. Walmart trades at an eye-popping 38 times trailing earnings. Investors usually reserve that multiple for a high-ARR tech company growing revenue by 30%+, not a retailer growing its store count by less than 1% per year.

So, as I researched the business, I kept coming back to the same question: what is the market seeing that I’m not?

To find out, grab your cart (the one with the wonky wheel, obviously) and let’s get into it!

— Kyle

Walmart is a cathedral to capitalism, you might say. Cheap stuff, lots of it, and all under one roof. You can buy pens, pajamas, a barbecue, apples, and a birthday card in a single trip. I know I’ve gone in there to buy a birthday present for one of my son’s friends, only to find myself with a full cart.

Retail hasn't been kind to the Intrinsic Value Portfolio, but we're not jaded enough to skip the industry entirely. Yes, discount retailers don’t offer the most compelling economics at first glance. Thin margins, cutthroat competition, and a graveyard of once-great names are all things that might come to mind when thinking of this industry.

Sears is the poster child for a business that was once a titan of industry and is now a “has-been,” with only five locations remaining. So why Walmart? When I finally sat down with its financials and thought much more deeply about the business, it became obvious that Walmart isn’t purely a big-box retailer.

Walmart has done a great job pivoting. It has invested heavily in other areas of its business, such as eCommerce, a third-party marketplace, pickup and delivery services, a paid membership program, and an advertising business, in addition to one of the largest physical retail footprints in the world.

But then there’s the price tag I mentioned earlier. Institutions seem happy to be holding this business at 38x earnings, which is, for context, a nearly 50% premium to the S&P 500’s P/E of 26, a number that is already historically elevated.

You can’t really understand Walmart or even modern retail, for that matter, without mentioning Sam Walton. From Costco and Home Depot to Amazon and General Electric, all these businesses borrowed pieces of Sam Walton's playbook.

Sam got his start running a Ben Franklin variety store in Newport, Arkansas. Why did he choose a city of just 7,000 people to begin his entrepreneurial journey? His wife, of course. She wanted to live in a city with a population of no more than 10,000, and Newport just made sense.

He turned that store into the top performer for the entire Ben Franklin Franchise in just a few years’ time. But what goes up must also come down. And even with all that success, it wasn’t to be long-lived. Once the landlord at his location caught wind of how successful he’d been, he decided not to renew Sam’s lease and handed the store over to his son instead, to try to replicate Walton’s success. It was a pretty rough start.

But that store taught Sam two lessons that are still flowing through Walmart’s veins today:

After leaving Ben Franklin, Sam opened his own store, Walton’s 5 & 10, in Bentonville, Arkansas. The 5 & 10 name came from selling items that cost only a nickel or dime. Funny, or maybe sadly enough, even dollar stores stopped selling things for a dollar a while ago.

What I love most about Sam is how obsessive he was. He’d show up at competitors’ stores with a notepad and write down details most people would easily overlook, like the distance between two aisles. He’d fly his single-engine plane over towns, scouting for new store locations or over existing competitors’ stores to see how full their parking lots were.

I love the concept of intelligent fanatics, and to me, Sam epitomizes it. Charlie Munger first coined the term “intelligent fanatic" to describe rare, exceptional business leaders who possess an intense, obsessive drive combined with rationality. Most business owners are not intelligent fanatics, but if you find one, hold tight, because you’ll likely make a great investment by partnering with them.

Sam had 10 rules for running a business. These ranged from how to communicate properly to exceeding customer expectations to controlling expenses. If those sound familiar, it’s because Jeff Bezos probably has these rules tattooed on him.

Walmart has three primary segments that generate revenue, but you could argue that only the first two really matter. First and most importantly, you have Walmart US, which accounts for the majority of Walmart’s revenue. Next, you have Walmart International. This is the part of the business outside of the US. Its largest countries include Mexico, China, and Canada. Lastly, you have Sam’s Club. This is a membership warehouse concept that primarily competes with Costco.

But man, the US revenue is really mind-boggling. Imagine a business that does half a trillion in revenue from just one country! My brain is still having a hard time processing that many zeros. But Walmart is the largest grocer in North America. And Amazon’s entire eCommerce operation generates less revenue in the US than Walmart stores. You’d think that in 2026, most shopping would happen online, but Walmart is still chugging along with its 5,000-plus US stores.

But the parts of Walmart I found most interesting aren’t even on the traditional brick-and-mortar retail side. There are three newer areas that I think investors should be much more excited about:

Want to know why Walmart sells things cheaper than Kroger, Safeway, or Target? The answer is just one word: scale.

Scale powers Walmart's flywheel. Walmart buys more stuff than nearly anyone, so it pays lower prices, then passes those savings back to customers as lower prices. That, in turn, brings in even more customers, leading to higher volume and greater buying power. That flywheel has been spinning for decades, which is how they have come to generate nearly ¾ of a trillion dollars in revenue.

Walmart’s disclosures mention two crucial acronyms. EDLP and EDLC. They stand for everyday low prices and everyday low costs.

Everyday Low Prices comes down to trust. You know the move where you walk down the aisle of a grocery store and see a box of Cheerios “on sale” for $5.99, down from $8.99? And then you remember the last time you bought Cheerios a few weeks ago: the same box was priced at $5.99, but not on sale. That fake-discount game is everywhere in retail. Walmart’s DNA is to avoid the fake discounts and offer prices that are always low, no coupon clipping required.

Everyday Low Costs is the other half. And while customers might not care about it as much as shareholders do, it matters to both parties. If customers want to continue seeing low prices, Walmart has to control its costs. Walmart has a reputation for spending very carefully.

Walmart has another advantage that’s a little harder to explain, so let me try with a simple lemonade stand metaphor. Imagine you run a lemonade stand business. Your suppliers decide they need you to buy from them to continue succeeding, so they send you everything from lemons to sugar to water and ice to the tables and cups, but tell you you have 60 days to pay. This means that after a full month, you've already sold the lemonade, have cash in your pocket, and haven’t had to pay your suppliers a dime.

Now scale that up to half a trillion dollars. That’s Walmart.

It collects cash from its shoppers before it even has to pay the suppliers who keep its shelves stocked. That’s called negative working capital, and at Walmart, it’s still around $27 billion. A figure that continues to grow over the years. Just to reiterate, Walmart’s suppliers finance their inventory for free. It’s a great situation to be in.

In 2025, the Federal Trade Commission sued PepsiCo, alleging that it gave Walmart preferential pricing that disadvantaged competition. This included retailers like neighborhood grocery stores, local convenience stores, mid-tier grocers, and independent retailers. The FTC eventually dropped the case, but it’s a great case study in how Walmart can throw its weight around. When you’re the supplier’s largest customer, negotiations become much easier: “Accept this price, or we'll pull your product off our shelves.”

In Germany, Walmart tried a similar tactic, but it didn’t work. I guess German regulators are less likely to tolerate it than US regulators. They demanded Walmart increase its prices to allow for more competition. Walmart eventually exited the entire country once they realized it wasn’t a country they could run the playbook in successfully.

I’ve been to a small local town a few hours from where I live where I’ve seen the “Walmart effect.” If I need something while passing through, chances are I’ll just go to Walmart. The other shops in the area are very few and far between because they just can’t compete.

As a customer, it’s hard to complain about low prices. But Walmart will likely continue to run into antitrust issues as long as it maintains its business model of keeping prices low.

One thing that surprised me: Walmart’s investor deck highlights their capital efficiency very well. Management reports returns on assets of about 8%, and return on investment over 15%. The fact that they show these figures is a great signal that they prioritize keeping that number up.

When I ran my own numbers, Walmart had a return on invested capital just north of 16%, which it’s maintained for the last few years. For a business with thin margins and literal mountains of inventory, I think that’s a very respectable number.

Given that Walmart has negative working capital and earns a strong return on invested capital, the next question is: where does the excess cash go? When Walmart was in its infancy, the answer to that question was simple: build new stores. But those days are long gone. Walmart is now growing its store count at a CAGR of less than 1%.

So this means most of the cash goes back to shareholders, with some reinvested. The ratio is about 80/20. Walmart still has significant capex. That expense totalled about $26 billion in fiscal 2027, with Walmart putting about 10% toward growth. The rest flows into things like remodels, supply chain, and eCommerce.

Buybacks have worked out well so far, but part of that is due to Walmart's currently high share price. Over the last three years, Walmart has repurchased shares at average prices below the current share price. So I’d say some of the value created by buybacks has been luck, because earlier buybacks at lower prices always look good when the stock price rises.

To be fair, the share count has meaningfully fallen, which has been great for existing shareholders, as they’ve gotten a larger and larger slice of the profits if they held on. The Walton family, for example, has been a major beneficiary of this as the company’s largest shareholders. But the ongoing concern, in my view, is price. Buying back stock at 30 to 40 times earnings means each dollar retires less of the company than it used to.

My gut, when I first looked at Walmart, with its constant emphasis on everyday low prices, was that the business would have very little, or even no debt. I think, relatively speaking, I was mostly right. But on an absolute basis, they’re carrying about $40 billion in debt.

Net debt-to-EBITDA is a paltry 0.9x. On a free cash flow basis, which I tend to prefer because it accounts for working capital and capex, it’s still a reasonable 2.6x. The debt terms are shareholder-friendly, with no covenants restricting actions such as buybacks or dividends. And since Walmart doesn’t seem likely to increase its growth rate anytime soon, it’s very unlikely they’ll need to turn to any dilutive financing.

I strongly prefer businesses that promote from within. So I was happy to see that Walmart’s current CEO, John Furner, started with Walmart all the way back in 1993, as an hourly associate before working his way up to running Walmart US.

Furner has had a short tenure as Walmart’s CEO, having started in early 2026, so I don’t think there’s enough time yet to really assess how he’s done. But I think we can tell he’s long-term oriented. In the latest earnings call, he said: “We're not managing our business for one quarter. We're managing our business on a multiyear basis to play to win." I like where his head is at, but actions speak louder than words, so we’ll need to check in at a later date to really see how he’s doing with the business.

The Walton family owns more than 50% of Walmart’s shares and includes seven family members among its billionaires. All of them achieved that status from holding Walmart stock. Oddly enough, despite all that ownership, only Sam Walton’s grandson, Steuart Walton, is involved, holding a seat on the board. Others have married in as well.

The compensation package is less exciting. Furner earned $27.3 million in 2026; that’s a lot of rotisserie chickens. To be fair, about 82% of that figure is performance-based, tied to key measures such as operating income, sales, and return on investment. And while stock-based awards dilute shareholders by about 1% annually, the buyback program has more than offset that.

I see a few growth levers that are most likely to move the needle for Walmart in the coming years.

The first is international growth. Walmart opened up roughly 200 international stores over the last year, and international revenue has compounded at about 9% per year since 2023. The standout country for international growth has been China, with 20% revenue CAGR over the same time period.

Next is eCommerce. Global eCommerce sales have grown around 23%. Since e-commerce theoretically carries higher margins than retail sales, it could begin to deliver operating leverage for Walmart. This is a piece of the Walmart puzzle that has been missing throughout its existence.

Put it together, and I think mid-single-digit top-line growth is very doable. But assuming low double-digit growth seems like you’d be in a dream world.

There are multiple things that could go wrong with Walmart, but in my view, given its current position as the low-cost provider and its minimal bankruptcy risk due to its financing, I’m not seeing anything truly existential.

The first risk I’d flag is labour costs. With a tight labour market, unions, and healthcare costs all rising simultaneously, there is a chance that labour costs could increase. Since Walmart operates on razor-thin margins, even a small increase in labour costs could force it to raise prices.

Then you have agentic AI shopping. You could, for instance, ask an AI agent on Muse to find you the cheapest laundry detergent with same-day delivery. It won’t care what brand you personally like. That could strip away the direct customer relationship that powers Walmart’s membership and advertising business. I’m not ready to let AI buy my toilet paper yet, but that might change the moment I hear it’s saving people a lot of money.

The final risk I’d flag is tariffs and China. Walmart recently received a nice $2.9 billion check in tariff refunds. While that’s great, it’s unlikely to be replicated for long. On top of that, Walmart sources many of its goods from China. If tariffs forced Walmart to switch suppliers, then chances are their products would go up in price.

I’ll reiterate that none of these are existential, but any of them could cause some real short-term pain.

I really like Walmart as a business. But as I’ve mentioned here, the business is not cheap. If we take the valuation away, sure, Walmart is good, but we can’t.

My base case assumes revenue grows just under 5% per year, in line with recent historical numbers. I also assume net margins inch up slightly to 3.2%, and the stock gets an exit multiple of about 20x in five years’ time. This gets me to about a $78 value. But once I blend my bear and bull cases and apply a 15% margin of safety, the intrinsic value comes out to around $50, which is currently less than half the share price.

So we’re passing on adding Walmart to The Intrinsic Value Portfolio. I’ll continue to shop there when it’s convenient for me, but as for being a shareholder, it’s a hard pass at current prices.

To listen to our discussion of Walmart, or for more company Deep Dives, check out our podcast here.

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— Sam Walton

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