Walmart’s (NYSE: WMT) stock is undergoing a split. The retail giant surprised investors by announcing a 3-for-1 stock split. In recent years, stock splits have been linked to high-flying tech stocks like those in the “Magnificent Seven.” Walmart’s announcement is a reminder that stock splits can occur at any company, regardless of the share price. Walmart shares closed at $165.25 on Wednesday, nearing an all-time high. This will be the retailer’s first split since 1999, indicating its struggle over the past 25 years compared to competitors like Amazon and the underperformance in the S&P 500. The stock split was aimed at encouraging employees to buy the stock. The company disclosed that over 400,000 employees participate in the Associate Stock Purchase Plan, allowing them to purchase stocks through payroll deductions and benefit from a 15% match on the first $1,800 they contribute annually. CEO Doug McMillon stated, “Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.” Walmart’s stock will begin trading on a post-split basis on Feb. 26, and the split will increase shares outstanding from 2.7 million to 8.1 million.Image source: Walmart.What the stock split means for Walmart investorsStock splits receive a lot of media attention, especially when they occur at major companies like Walmart, but they don’t impact the fundamentals of the business. Although the stock may seem cheaper after a split, the overall business size remains the same, whether measured by earnings, cash flow, or revenue. The stock split won’t affect any of those valuation ratios. Investors will still own the same percentage of the business as they did before.Nonetheless, there is evidence that stock splits are correlated with a stock’s outperformance over the next year. This may be due to the momentum heading into the split as they typically occur after substantial price gains or increased interest among investors. Walmart is clearly hoping that the move will spur more buying among its employees, which could help push the stock higher.Is Walmart stock a wise investment?After being slow to embrace e-commerce in the early 2000s, Walmart has made significant strides in recent years, including adding grocery-pickup stations at most of its stores and embracing the omnichannel retail model. It’s begun building out its own third-party e-commerce marketplace to compete with Amazon. In most recent quarters, it has posted faster e-commerce growth than Amazon. At the same time, its grocery business, which makes up over half of its revenue, has been able to withstand inflation and the pressure felt by consumer discretionary retailers. The company reported 5% comparable-sales growth, excluding fuel, in the third quarter, and adjusted operating income rose 3% to $3.5 billion. It also raised its adjusted earnings-per-share guidance for the year to $6.40-$6.48. Operationally, Walmart appears to be as strong as it has been in a long time. However, there is a difference between a well-run business and a good stock buy. At a forward price-to-earnings ratio of 26, Walmart’s valuation is similar to the S&P 500’s. At that price, investors are paying a considerable amount for Walmart’s modest growth prospects. Walmart is a safe stock with a history of increasing its dividend, but investors should be aware that they are paying up for that stability. For the right type of investor, Walmart is a prudent investment. It’s a well-managed, dividend-paying, recession-proof business. However, for those seeking growth or a stock that can outperform the S&P 500 by a wide margin, there are better stocks to consider.Should you invest $1,000 in Walmart right now?Before purchasing Walmart stock, consider this: The Motley Fool Stock Advisor analyst team has identified what they believe are the 10 best stocks for investors to buy now, and Walmart wasn’t one of them. The 10 stocks selected could yield significant returns in the coming years. Stock Advisor offers investors a straightforward plan for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. Since 2002*, the Stock Advisor service has more than tripled the return of S&P 500*. See the 10 stocks *Stock Advisor returns as of January 29, 2024 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.Walmart’s Stock Is Gravitating Toward an All-Time-High: Could a Stock Split Make It a Magnificent Buy? was originally published by The Motley Fool
