With a customer-centric approach, cutting-edge retail solutions, and a dominant omnichannel presence, Walmart Inc. WMT remains at the forefront of the evolving retail industry. However, the company’s current forward 12-month price-to-earnings (P/E) multiple of 32.85X raises concerns about whether the stock's valuation is justified. This multiple is higher than the Zacks Retail - Supermarkets industry average of 30.15X, making the stock appear relatively expensive.

This makes WMT stock appear overvalued, especially when compared to other retail giants like The Kroger Co. KR at 13.88X, Target Corporation TGT at 11.38X and Ross Stores, Inc. ROST which has a P/E ratio of 19.41X, all lower than Walmart. Adding to investor unease is WMT’s low Value Score of C, which suggests that it may not be a strong value proposition at current levels. 

The stock’s premium valuation suggests that investors have strong expectations for Walmart’s growth potential. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point.

While WMT’s share price has decreased 16% in the past month, many investors are questioning whether the recent dip presents a buying opportunity. This compares with the broader industry’s 17% decline, the Retail-Wholesale sector’s fall of 10.9% and the S&P 500’s decline of 8.5% in the same period.

WMT’s Stock’s One-Month Price Performance

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Currently trading at $87.46, the stock reflects a 49.4% premium to its 52-week low mark of $58.56 and a 16.9% discount from its 52-week high of $105.30. The technical indicators show that the stock is trading below its 50-day moving averages, indicating a bearish sentiment.

Walmart Trades Below 50-Day Moving Averages

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With these factors in mind, investors must carefully assess Walmart’s growth potential against its premium valuation.

Understanding WMT’s Growth Drivers 

Walmart continues to strengthen its market leadership through a highly diversified business model, with revenue contributions spanning multiple segments, markets, channels and formats. The company has successfully adapted to evolving consumer preferences, benefiting from rising in-store and digital traffic. Newer ventures like the marketplace, advertising and membership have contributed to revenue diversification, reinforcing its business resilience and long-term growth potential.

Walmart remains focused on omnichannel excellence, leveraging advanced data analytics, digital expansion, and in-store optimization. The company has undertaken several initiatives to boost e-commerce operations, including strategic acquisitions, partnerships, and improvements in delivery & payment systems. In the fourth quarter of fiscal 2025, Walmart’s Global e-commerce sales increased 16% as penetration increased across all segments. The upside can be attributed to store-fulfilled pickup and delivery services, along with growth in the U.S. marketplace. The company continues to expand aggressively in the online grocery segment, a key driver of its digital commerce success.

Walmart has significantly strengthened its delivery infrastructure, ensuring fast and convenient order fulfillment. Impressive store proximity to customers has allowed Walmart to use its stores to fulfill e-commerce orders. In the fiscal fourth quarter, the company’s store-fulfilled delivery network reached 93% of U.S. households, offering same-day delivery services. In addition, Walmart's newly launched same-day pharmacy delivery service has received strong customer approval. As of the last quarter, Walmart U.S. operates nearly 4,600 pickup locations and approximately 4,500 delivery stores, further enhancing its last-mile delivery capabilities and customer satisfaction.

What’s Not Working for Walmart? 

Despite strong growth drivers, Walmart continues to navigate a highly dynamic retail environment. During its fiscal fourth-quarter earnings call, the company anticipated that this trend would continue. Management’s outlook assumes a relatively stable macroeconomic backdrop but acknowledges lingering uncertainties related to consumer behavior, global economic conditions and geopolitical factors. Walmart expects consolidated net sales growth of 3-4% in fiscal 2026, marking a slowdown from the 5.6% growth recorded in fiscal 2025. 

Adding to its challenges, Walmart’s operating expenses increased 46 basis points (bps) in the fiscal fourth quarter, driven by higher variable pay, rising utility costs and increased marketing expenses. Furthermore, integration costs related to the Vizio acquisition negatively impacted operating income. The persistence of cost pressures, coupled with continued price investments to maintain market share, may weigh on the near-term margins.

As a global retailer, Walmart is exposed to currency fluctuations, which pose an ongoing risk to earnings and profitability. Looking ahead to fiscal 2026, the company expects foreign exchange fluctuations to affect sales growth by 100 bps and operating income by 150 bps, posing a potential challenge to profitability.

WMT’s Estimates Reflect Downtrend

The Zacks Consensus Estimate for Walmart’s earnings per share for the current and upcoming fiscal years has been revised downward over the past 30 days. This shift indicates a growing bearish outlook among analysts and highlights potential obstacles the company may face in meeting its profitability goals.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

WMT’s Investment Rationale

Walmart faces notable challenges, including premium valuation concerns, slowing sales growth, rising operating expenses, and currency fluctuations. Despite these hurdles, the company's robust omnichannel presence, digital expansion, and strong delivery network continue to solidify its leadership in the retail sector.

However, some caution is warranted, given the prevailing headwinds, which call for a thorough evaluation of recent developments before making investment decisions. For current shareholders, retaining this Zacks Rank #3 (Hold) stock may prove advantageous in the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Target Corporation (TGT) : Free Stock Analysis Report

Walmart Inc. (WMT) : Free Stock Analysis Report

The Kroger Co. (KR) : Free Stock Analysis Report

Ross Stores, Inc. (ROST) : Free Stock Analysis Report

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

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