Walmart Inc. (NASDAQ:WMT) benefits from collecting shoppers’ cash before many supplier bills fall due. That advantage can finance merchandise growth, but inventory and accounts payable together absorbed approximately $1.0 billion in the first half of fiscal 2027, compared with supplying $0.6 billion a year earlier. Inflation and a larger inventory commitment are testing how efficiently sales become cash.
Walmart Inc. has a forward P/E of approximately 38x versus a trailing P/E of 40x. Operating growth supports the lower forward multiple, while investment revaluations complicate comparisons with reported profit. Management’s $2.80–$2.87 adjusted EPS guidance implies 6–9% growth for the year ending January 2027. Target Corporation (NYSE:TGT) guides to 31–44% growth over the comparable fiscal period, but its outlook includes $1.65 per share of tariff refunds. Adjusted earnings can still contain exceptional benefits.
For Walmart Inc., Target Corporation is the closer general-merchandise comparison. Greater purchasing scale, grocery frequency, and growing advertising income support a quality premium. Costco Wholesale Corporation (NASDAQ:COST), at 40x forward earnings, uses a membership warehouse model, making the cost of rewarding customer loyalty part of the comparison. A modest discount to that business does not establish cheapness. The valuation looks demanding unless recurring free cash flow improves.
Read the full comparison here: Costco (COST) vs. Walmart (WMT): Which Retailing Giant Has a Wider Moat?
Supplier Funding Works Best When Shelves Turn Quickly
Walmart Inc. ended July with $64.3 billion of accounts payable against $61.6 billion of inventory. Purchasing scale and frequent grocery purchases help merchandise move before suppliers require payment. Reliable availability reinforces customer traffic, while a broad store network spreads distribution costs across substantial sales. These advantages can reduce the capital shareholders must supply for growth.
For Walmart Inc., however, a favorable balance-sheet position did not mean inventory funded growth during the half. Inventory changes consumed $2.660 billion of operating cash, while higher payables supplied $1.648 billion. Those cash-flow movements, rather than simply subtracting period-end balances, establish the $1.012 billion drag. As with customer funding that supports production before delivery, payment timing provides financing, not an additional profit margin.
Walmart Inc. reported inventory growth of 6.0% in constant currency, reflecting strategic initiatives and inflation, alongside quarterly constant-currency revenue growth of 5.1%. Management expects annual sales growth of 4–5% on that basis. Higher merchandise costs can absorb cash even without a matching increase in physical stock. If shoppers become more selective, slower turnover would tie up funding longer and increase markdown risk.
Advertising and membership growth offer a better route to additional profit without proportionately more owned merchandise. Global advertising grew 38%, and membership fees rose 17% in Q2. Those businesses strengthen the case for a premium, provided their gains survive spending on customer acquisition, service and infrastructure.
Find WMT among 10 Best Bear Market Stocks to Invest In Right Now
Investment and Refunds Complicate Cash Conversion
Walmart Inc. increased first-half operating cash flow to $19.7 billion from $18.4 billion. Capital expenditure rose faster, to $14.2 billion from $11.4 billion, reducing free cash flow to $5.5 billion from $6.9 billion. Here, free cash flow means operating cash after property and equipment spending. Inventory was a headwind within operating cash; the larger investment bill explains why stronger operating cash still left less for shareholders.
The company also raised planned annual capital expenditure from approximately 3.5% to 4.0% of sales. Better inventory turnover could release cash, but it cannot eliminate that additional spending. Investment must improve availability, throughput, or operating costs enough to increase future cash generation. First-half dividends and repurchases totaled approximately $9.0 billion, exceeding free cash flow and increasing the importance of funding discipline.
Walmart Inc. also benefited from tariff refunds in Q2. These remained within adjusted operating earnings, with management prioritizing remaining benefits for customer experience and lower prices in the second half. Industry competition makes that reinvestment understandable: attractive prices protect traffic. But temporary refunds can flatter an apparently stronger margin, and neither the receipt nor its earnings benefit should be projected as recurring.
The forward P/E was approximately 45x in April 2026, 39x in January and 34x in October 2025. The latest 38x sits below the recent peak but above the earlier valuation. Stronger advertising, membership, and operating-income guidance support the business outlook. Higher capital intensity and refund-supported profits weaken the argument that the lower multiple alone creates a bargain.
Conclusion
Walmart Inc. looks demanding at 38x forward earnings. Supplier credit remains valuable, but it has not prevented inventory from absorbing cash, and rising capital spending adds another claim on operating profits. Faster inventory turnover, durable margin gains excluding refunds, and improving free cash flow after investment are needed to justify the valuation.
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This article is originally published at Insider Monkey.
