Walmart Stock Has Pulled Back. Is It Time to Buy?
Shares of Walmart (NYSE: WMT) surged to an all-time high of $105.30 earlier this year, lifted by excitement over the company's growing advertising business, e-commerce strength, and steady retail growth. But since then, the stock has cooled off. Shares have fallen to the mid-$80s as of late March.
What changed? Fundamentally, not much. You could say that a retailer like Walmart, which focuses on low prices, could benefit from the uncertain market environment we're in. Still, shares have taken a beating as investors fear that Walmart's revenue and profit growth could slow this year. Furthermore, valuation may be a key concern for investors. Shares command quite a high premium for a business with growth rates in the single digits.
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So, let's address the most pressing question for Walmart investors: Is this dip a buying opportunity?
Still a retail giant in growth mode
Walmart ended its fiscal 2025 with total revenue up 5.6% year over year to $648.1 billion. The company also expanded its high-margin global advertising business, Walmart Connect, which saw a 27% increase in ad sales for the year.
In the fourth quarter specifically, U.S. comparable sales increased by 4.6%, faster than the company's full-year growth rate of 4.4%, helped in part by strong e-commerce sales growth of 20%. International sales may have looked weak on the surface for Q4, with reported sales for the region falling 0.6% year over year. But the underlying business momentum is there; adjusting for foreign exchange fluctuations, international sales rose 5.7% during the quarter. Finally, global advertising sales for the period increased 29% year over year -- two percentage points higher than the important segment's growth rate for the full year.
But where Walmart is really shining is profitability. The company's continued expansion into higher profit-margin services is leading to good operating leverage. Earnings per share for Walmart's most recent quarter was $0.66 on an adjusted basis, up from $0.60 in the year-ago quarter when adjusted for a 3-for-1 stock split. Operating income rose 8.3%, or 9.4% when adjusted for currency fluctuations.
A cautious outlook
The recent dip in Walmart's share price has more to do with forward-looking guidance than recent results. For fiscal 2026, management expects net sales growth of 3% to 4% and adjusted operating income growth of 3.5% to 5.5%. This would mark a significant slowdown from the company's 9.7% adjusted operating income growth last year.
Investors may also be concerned about broader macroeconomic risks. Higher interest rates, stubborn inflation, and growing concerns about consumer spending are all factors that could impact Walmart's growth. Sure, value-based retailers have some advantages during tough economic environments as their prices stand out more from peers. But if the economy gets bad enough, consumers may start cutting back on more discretionary purchases. In addition, new tariffs on Chinese and Mexican imports could raise costs or pressure margins if Walmart chooses to absorb some of those increases to keep prices low.
While management's full-year guidance was cautious, management seems confident in its ability to navigate a dynamic market.
"[W]e're prepared for all sorts of environments, whether it's more promotional or less promotional," said Walmart CEO John Furner in the company's fourth-quarter earnings call. "We're going to focus on value for our customers and we're going to do everything we can do to control prices and keep prices low."
Of course, Furner's comments about doing all it can to "control prices and keep prices low" could be the reason for the conservative guidance. Some investors may interpret this as management being unwilling to pass on the full costs associated with incremental tariffs.
With all of this said, the real concern with Walmart isn't necessarily its business. Sure, worse-than-expected full-year guidance is a reason to make some slight downward adjustments to long-term expectations for the business, but it's not enough to merit a 19% pullback in the stock price. The more significant problem is the stock's valuation; even after this decline, shares still trade at a price-to-earnings multiple of 35. This is significantly higher than several of the "Magnificent Seven" stocks and well above the S&P 500's multiple of about 22. With shares trading just below $85 at the time of this writing, the valuation is arguably still stretched.
Walmart is a great business. But considering the stock's current valuation, the company's unimpressive full-year financial guidance, and the current macroeconomic environment, this doesn't look like a good entry point into the stock. If shares traded at a price-to-earnings multiple in the mid-20s, I might reconsider.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.
