Walmart Stock Analysis: Buy the Dip? | WMT Stock Analysis

SUMMARY

Parkev Tatevosian, CFA, examines Walmart's recent quarterly performance, highlighting strong revenue growth driven by e-commerce and market share gains, but also noting investor disappointment over rising costs and compressed profits. Despite operational improvements, Tatevosian maintains a cautious stance on Walmart's valuation, suggesting the stock remains overvalued even after its recent decline.

MAIN POINTS

• Walmart shares declined 10% following quarterly results that disappointed investors despite a decade of strong performance. [0:00]
• Walmart's revenue grew 7.3% to $178 billion, with e-commerce sales up 26% and significant gains in store-fulfilled pickup and delivery. [2:01]
• Walmart has closed the gap with Amazon in delivery speed and price, but profit growth lagged revenue due to higher import costs and tariffs. [4:01]
• Operating cash flow fell by $700 million, and share repurchases continued despite the stock not being undervalued. [7:01]
• Walmart's forward price-to-earnings ratio remains high compared to major tech stocks, and the intrinsic value is estimated at $71 per share, well below the current price. [9:01]
• The analyst reiterates a hold rating, citing overvaluation despite operational improvements and market share gains. [11:00]

DETAILED ANALYSIS

Walmart experienced a notable share price decline of approximately 10% over the past month, primarily due to investor disappointment with its latest quarterly financial results. Despite a decade of robust performance and innovation, including significant advancements in e-commerce, automation, and logistics, the company's most recent earnings report revealed a disconnect between revenue and profit growth. Total revenues increased by 7.3% to $178 billion, with e-commerce sales surging 26%, largely driven by the popularity of store-fulfilled pickup and delivery services.

These operational strengths have allowed Walmart to close the gap with Amazon, particularly in delivery speed and price competitiveness, leveraging its extensive network of over 10,000 locations worldwide.

However, the quarter also highlighted challenges on the cost side. Operating income rose only 5%, lagging behind revenue growth, as Walmart absorbed higher import costs and tariffs rather than passing them on to consumers. This strategy, aimed at maintaining low prices and gaining market share, resulted in compressed profit margins.

Additionally, the company faced increased transportation costs, partly due to elevated gas prices influenced by geopolitical tensions. Operating cash flow decreased by $700 million, and Walmart continued share repurchases, spending $2.1 billion to buy back 16.6 million shares, despite the stock not being undervalued by traditional metrics.

In the U.S. market, transaction volume increased 3% while the average ticket rose only 1.1%, reflecting Walmart's decision to limit price hikes amid broader inflation. This approach has attracted value-conscious consumers facing rising costs in other areas such as rent, healthcare, and transportation. Despite these operational successes, Walmart's valuation remains elevated.

The forward price-to-earnings ratio is around 40, higher than major technology firms like Nvidia, Amazon, Microsoft, Meta Platforms, and Alphabet. Based on a proprietary discounted cash flow model, the intrinsic value per share is estimated at $71, significantly below the current market price of $115. Consequently, the stock is rated as a hold, with concerns about overvaluation outweighing the company's recent improvements.

LINKS

• YouTube channel membership for exclusive perks and early access.
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• Parkev Tatevosian's book on stock investing frameworks.
• Fiscal.ai platform with a discount for viewers.
• Webull sign-up with bonus shares offer.
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