Wal-mart (NYSE:WMT) continues to defy expectations. In the recently reported third quarter, it posted EPS (excluding items) of $1 a share and revenue of $123.18 billion, topping analyst expectations of $0.97 and $121 billion, respectively. Perhaps more importantly, Wal-mart increased same-store sales in the U.S. by 2.7% versus expectations of 1.8%; it was Wal-mart's 13th quarter in a row growing same-store sales.

This isn't your father's Wal-mart. And if you're not paying attention, you may be missing out on a great opportunity.

Person holding a credit card and a smartphone while sipping a latte.

Image source: Getty images.

Wall Street got this wrong

Wal-mart's revival can be traced back approximately two years, to the company's 2015 third-quarter report. CEO Doug McMillon told investors the company was investing $1.5 billion in wages, training, and e-commerce, and that this would lead to an EPS drop of 6% to 12% in the following year. In response, shares of the stock sold off approximately 10%, the steepest one-day decline for the company in 25 years.

At the time, an analyst at Edward Jones summed up Wall Street's skepticism by noting: "The guidance is very disappointing. What if these investments don't lead to better sales, that's the biggest question." (For the record, I have repeatedly written about the need for Wal-mart to invest in its employees to grow.)

In a testament to how myopic Wall Street is, the stock has since rallied 62% versus the 29% gain of the S&P 500:

WMT Chart

WMT data by YCharts.

How did Wal-mart get its mojo back?

Investment in wages and training has led to cleaner stores and a better consumer experience. Before the announcement, only 16% of Walmart stores were meeting internal customer service goals. Last year, that figure had jumped to 75%. Look for those numbers to continue to rise as the company's new Walmart Academy will have trained nearly 250,000 employees by year-end.

Perhaps the biggest reason for the turnaround is the company's new, competitive digital strategy. After paying approximately $3.3 billion in a cash-and-stock deal for e-commerce company Jet.com, Wal-mart appointed founder and CEO Marc Lore as the head of both Jet.com and Walmart.com. The acqui-hire is paying off: In the third quarter, digital sales increased 50%, with the vast majority of the increase coming through Walmart.com, according to McMillon. Look for strong online growth to continue.

Has Wal-mart ran too far?

Still, it's reasonable to ask if shares of Wal-mart have come too far too fast. That's an especially pertinent question in light of the challenges in the retail industry: Approximately 20 retailers have filed for bankruptcy protection this year. Additionally, through the first three quarters, the company's operating income is 3.6% lower than last year's due to increased cost of sales (product selection, or mix) and the investments in employees (wages and training). (A GAAP-earnings comparison is a poor proxy this quarter because of non-operational expenses from debt extinguishment.)

However, shares of the megaretailer are not currently overvalued on a relative basis. The company trades mostly in line with the S&P 500 in terms of both trailing and forward price to earnings, which suggests the rally is not due to high (and potentially unreasonable) expectations.

One thing is clear: This isn't your father's Wal-mart. Look for the company to continue growing its digital channel, improving the in-store experience, and pleasantly surprising investors.

Jamal Carnette, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.