It’s been a bit of a strange year for Walmart (NYSE:WMT). Walmart stock exploded higher into 2018, clearing $109 in late January. By late May, though, WMT stock had lost a quarter of its value.

In August, however, Walmart posted what Luke Lango rightly called the company’s “best quarter in years.” WMT stock soared by over 9%, returning briefly to the triple digits. Yet the optimism has faded again: WMT now has given back about two-thirds of the post-earnings jump.

I wrote after earnings that the early weakness wasn’t a surprise. At this point, Walmart stock could have further to fall. External pressures are mounting. The narrative driving the bull case for WMT hasn’t been proven. And WMT stock really isn’t that cheap, relative to peers and its past valuations.

Technicals suggest that WMT could “fill the gap” and return to pre-earnings levels of $90, at least. Fundamentals and qualitative analysis actually drive a potentially similar conclusion.

Will Tariffs Hit WMT Stock?

Last month, Walmart wrote a letter to the Trump Administration warning that tariffs would lead it to raise prices. The company described a series of unappealing options:

Either consumers will pay more, suppliers will receive less, retail margins will be lower, or consumers will buy fewer products or forego purchases altogether.

Pretty much any of those options are a negative for Walmart profits. Consumers aren’t going to Walmart to pay more. The company already is notorious for getting price concessions from suppliers. And fewer (or zero) purchases will hit same-store sales.

To be sure, Walmart’s rivals will see the same pressure. Target (NYSE:TGT) imports products from China as well; even Amazon.com (NASDAQ:AMZN) sells many imported goods. But Walmart’s entire business model is based on low prices; it’s not hard to imagine higher prices leading shoppers to look elsewhere, or just stay home.

Ecommerce Concerns

The big driver for Walmart of late has been its ecommerce business. The run to $110 came because investors saw Walmart as a potential challenger to Amazon with a market capitalization about one-third of its online rival.

Choppy results on that front have led to the moves in WMT stock. Q4 ecommerce growth of “just” 23% sent the stock tumbling; 40% growth in Q2 sent it back up.

Walmart is continuing to invest in omnichannel retailing. It acquired plus-size fashion startup Elouqiii for $100 million this month. It spent $250M for Latin America’s Cornerbox last month, and has remade its Jet.com.

But I’m still not sold that Walmart can become a leader in ecommerce. In the meantime, the investments are pressuring operating margins, which continue to compress. And even if Walmart sees success – and it will see some success – investor patience may wane in the meantime.

Is Walmart Stock Really Cheap?

At 19.5x forward earnings, WMT stock really isn’t all that cheap on a couple of fronts. Peers are cheaper, with TGT at 15x forward earnings and grocer Kroger (NYSE:KR) at 13x. I’d argue Walmart stock merits a premium to both stocks, but it’s still getting a big premium even after the recent pullback.

The 19.5x figure also is higher than the multiple WMT has received for most of this decade. Generally, WMT has traded between 15x and 18x earnings.

The ecommerce opportunity likely has driven the recent expansion. But that just shows yet another way Walmart stock is reliant on ecommerce success.

The brick-and-mortar business is out of room to expand in the U.S.

International operations are much smaller: in fiscal 2017, the international segment saw revenue barely one-third that of the U.S., with lower operating margins. Sam’s Club has stalled out, closing stores as it loses market share to Costco (NASDAQ:COST).

There’s a lot of pressure on Jet.com, the smaller ecommerce acquisitions, and Walmart’s omnichannel strategy on the whole. With fears about tariffs and wage inflation providing pressure, it takes a lot of confidence to stick with Walmart stock as the company tries to transform itself. Recent trading shows that at least in the near term, the market may not have that confidence.

As of this writing, Vince Martin has no positions in any securities mentioned.