Forget Walmart. The Grocer Beating It on Trust and Margin Trades at a Third of the Multiple

"The pitch you keep hearing is that Walmart is winning groceries. Fine. The problem is that the multiple you are paying has almost nothing to do with the groceries. At a trailing P/E near 48 and a price to free cash flow of 70, The market is valuing this like an advertising and eCommerce growth platform, which is exactly the narrative management is selling. Advertising revenue grew 37% to $6.4 billion, eCommerce jumped 24%, and the VIZIO integration gives the story a tech sheen. That is the multiple expansion engine, not the milk and eggs."

"Strip away the hype and what you actually own is a company where Q4 net income fell 19.36% year over year to $4.24 billion even as revenue grew, where net profit margin sits at 3.07%, and where management guided FY27 adjusted EPS of just $2.75 to $2.85. Even Benzinga flagged that Walmart now trades richer than the S&P 500 and even NVIDIA (NVDA), with a double-top forming on the chart. Retirement money chasing that setup is the definition of being in the crowd, not ahead of it."

"If you believe inflation is going to stay sticky and shoppers will keep trading down, the cleanest way to own that is Kroger (KR), a $40.7 billion pure-play grocer the market keeps treating like an afterthought. Three reasons it belongs on your radar. First, private label is actually working. Kroger's Our Brands portfolio drove gross margin to 23.1% from 22.7% last quarter, with sourcing gains and lower shrink doing exactly what private label is supposed to do in a trade-down cycle."

Walmart’s stock has risen strongly, but its valuation is driven more by advertising, eCommerce, and technology integration than by grocery performance. Trailing P/E near 48 and price to free cash flow around 70 indicate the market is pricing Walmart like a growth platform. Advertising revenue increased to $6.4 billion and eCommerce rose 24%, supported by the VIZIO integration. Despite revenue growth, Q4 net income fell 19.36% year over year, with a net profit margin of 3.07% and FY27 adjusted EPS guidance of $2.75 to $2.85. Kroger is positioned as a trade-down beneficiary, with private label improving gross margin to 23.1% from 22.7% through sourcing gains and lower shrink.

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