Forget WEN Stock and Look at WMT Instead

2025 was a year to forget for many fast food restaurant stocks, including Wendy's (NASDAQ: WEN), which saw its price drop by roughly 49%. The stock had been steadily declining for the past few years before the big drop, and while Wendy's dividend has a 6.76% yield, that's not enough to make up for recent share price losses.

People started tightening their wallets last year, looking for ways to trim their budgets. That included looking for better deals on food, which meant cooking at home more. That creates the perfect opportunity for Walmart (NASDAQ: WMT) as it makes most of its sales from groceries. At the company works to push its valuation above $1 trillion in 2026, the global retailer will rely on that grocery revenue, but it has a few additional revenue sources as well.

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Economies of scale make it hard to beat Walmart

Walmart offers consumers a wide assortment of products and services in its locations, which makes the brick-and-mortar retailer hard to beat. Walmart can beat local competitors on shipping, price, and employment. Each store acts as a logistics facility as well, which helps it compete in e-commerce as well because it can use its stores to facilitate same-day deliveries on thousands of product categories. The vast store footprint and large customer base also make Walmart an incredible bulk purchaser for sellers. Walmart acts as the middleman and receives lower per-unit costs than most of the competition.

These advantages let Walmart charge some of the lowest prices for groceries while ensuring profits. Walmart also has multiple product categories that make money instead of just relying on food. It's normal for people to buy all of their essentials at Walmart, while Wendy's fast food restaurants are nonessential and more for convenience.

This setup increases the average order size per customer and gives them more reasons to return to Walmart. If you're not hungry, there's no reason to drive to Wendy's or any fast food restaurant. However, you might still go to Walmart even if you just had dinner.

Online ads offer a path to higher profit margins

While retail is the defining part of Walmart's business, digital advertising is starting to play a role in boosting the company's profit margins over the long run. It's similar to how Amazon started as an online retailer and expanded into other opportunities to boost its margins.

Walmart's online ads still make up a small part of the business, but ad revenue surged by 53% year over year in fiscal 2026's third quarter (ended Oct. 31, 2025). Higher ad revenue should eventually increase profit margins, which regularly sit close to 3%.

Wendy's doesn't have as many paths to higher profit margins, as evidenced most recently when the fast food restaurant chain reported declining revenue and net income in Q3.

Walmart has better growth opportunities, can expand its margins in the long run, and offers affordable groceries, a need for many Americans. Wendy's is more for convenience, and rising fast food prices have led to some pushback from consumers.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.