Walmart Inc.’s WMT shares recently pulled back, dropping 8.7% in the past three months. This downturn can be attributed to a slowdown in sales growth, influenced by an ever-changing retail landscape and unpredictable consumer behavior. Supply chain disruptions, coupled with rising concerns over trade wars and rising tariffs, are fueling investor apprehension. These issues are particularly concerning for Walmart, which depends heavily on global supply chains, resulting in increased caution among investors.

As a result of this pullback, Walmart has underperformed its industry peers in the last three months. WMT’s decline is steeper than the industry's fall of 8%. Meanwhile, the broader Zacks Retail-Wholesale sector and the S&P 500 posted respective declines of 11.3% and 14.7% in the same period.

WMT Price Performance vs. Industry, S&P 500 & Sector

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Walmart’s performance is in sharp contrast to other retail giants such as The Kroger Co. KR, Dollar General Corporation DG and Dollar Tree, Inc. DLTR. Over the past three months, Kroger, Dollar General and Dollar Tree saw gains of 12.8%, 28.5% and 1.2%, respectively.

Currently priced at $83.83, Walmart’s stock is trading at a 20.4% discount from its 52-week high of $105.3, reached on Feb. 14, 2025. This suggests that the stock may have significant upside potential.

Meanwhile, Walmart’s stock has fallen below critical technical levels, including its 50-day moving average — an important indicator of market trends and momentum. This development has sparked concerns about the company’s ability to navigate current market dynamics.

Walmart Trades Below 50-Day Moving Average

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At this point, investors are questioning whether Walmart can bounce back from the recent decline by leveraging its strong fundamentals and growth strategies.

Is a Recovery Possible? A Closer Look at Walmart’s Core Strengths

Walmart continues to solidify its market leadership with a highly diversified business model, drawing revenues from various segments, markets, channels and formats. The company effectively adapts to changing consumer preferences, benefiting from rising in-store and digital traffic. In addition, newer initiatives such as its marketplace, advertising services and membership programs have further diversified revenue streams, strengthening Walmart’s business resilience and enhancing its long-term growth prospects.

Remaining committed to omnichannel excellence, Walmart leverages advanced data analytics, expanding its digital presence and optimizing in-store operations. The company has implemented several strategies to enhance its e-commerce capabilities, including key acquisitions, partnerships and improvements to its delivery and payment systems. In the fourth quarter of fiscal 2025, Walmart's global e-commerce sales rose 16%, with growth across all segments. This positive performance can be attributed to the success of store-fulfilled pickup and delivery services, as well as growth in the U.S. marketplace. Walmart continues to aggressively expand its online grocery segment, a major driver of its digital commerce success.

To support its growing e-commerce efforts, Walmart has significantly improved its delivery infrastructure, ensuring fast and convenient order fulfillment. By strategically locating its stores close to customers, Walmart has been able to leverage its physical locations to fulfill e-commerce orders. In the fiscal fourth quarter, Walmart's store-fulfilled delivery network reached 93% of U.S. households, offering same-day delivery services. In addition, Walmart's newly introduced same-day pharmacy delivery service has gained strong customer approval. As of the last quarter, Walmart U.S. operates nearly 4,600 pickup locations and approximately 4,500 delivery stores, further strengthening its last-mile delivery capabilities and improving customer satisfaction.

Key Obstacles to Walmart’s Growth Trajectory

Despite strong growth drivers, Walmart faces significant challenges in an increasingly dynamic retail environment. On its fiscal fourth-quarter earnings call, the company indicated that these challenges are likely to persist. While management’s outlook assumes a stable macroeconomic environment, it acknowledges the ongoing uncertainties surrounding consumer behavior, global economic conditions, and geopolitical factors. For fiscal 2026, Walmart projects consolidated net sales growth of 3-4%, a slowdown from 5.6% growth recorded in fiscal 2025.

In addition, Walmart is dealing with rising operating expenses, which increased by 46 basis points (bps) in the fiscal fourth quarter. This rise was primarily driven by higher variable pay, increased utility costs and higher marketing expenditures. Integration costs related to the Vizio acquisition also negatively impacted operating income. Continued cost pressure, along with ongoing price investments aimed at maintaining market share, could weigh on near-term margins. Furthermore, the potential for higher tariffs and trade barriers could further put pressure on Walmart’s costs, particularly given its reliance on global supply chains. Increased tariffs on imported goods could lead to higher sourcing costs, potentially impacting pricing strategies and profitability.

As a global retailer, Walmart is also vulnerable to currency fluctuations, which continue to pose a risk to its earnings and profitability. Looking ahead to fiscal 2026, the company expects foreign exchange fluctuations to reduce sales growth by 100 bps and operating income by 150 bps, potentially putting pressure on its profitability.

Is Walmart’s Premium Valuation Justified?

Despite the recent drop in its share price, Walmart is currently trading at a forward 12-month P/E multiple of 31.29X, exceeding the industry average of 28.63X. The stock trades at a premium to other retailers like Kroger (13.80), Dollar General (16.29) and Dollar Tree (13.65). With a Value Score of C, Walmart may be less appealing to value-focused investors.

This premium valuation suggests that investors have high expectations for Walmart's future performance and growth potential. However, given the relatively high valuation, the stock may be seen as pricey by some investors.

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How Should You Play WMT Stock?

While Walmart's strong fundamentals and growth strategies present solid long-term prospects, investors should carefully evaluate their risk tolerance given the current market dynamics and premium valuation. The recent pullback in stock price may offer a potential entry point. Still, those concerned about high valuations may prefer to wait for a more favorable market condition before making a move. 

For current investors, holding onto the stock could be a prudent choice, as Walmart's diversified business model, e-commerce expansion and resilience in navigating challenges provide a strong foundation for future growth. However, it is essential to remain cautious and monitor the evolving retail environment and global economic factors that could impact profitability. At present, WMT carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Walmart Inc. (WMT) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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