The Bullish Narrative on Walmart Relies Too Much on Stimulus

Walmart (NYSE:WMT) is known as the world’s biggest retailer and as shoppers panic-bought basic goods during the onset of the novel coronavirus pandemic, WMT stock suddenly became a darling of the markets.

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background

Source: Jonathan Weiss / Shutterstock.com

That might have made sense a year ago, but times have changed. There are vaccines available and sometimes you’ll see mask-less people in stores nowadays.

So, WMT stock isn’t likely to continue its bull run based on panic buying. On the other hand, some folks might hold the shares because they’re counting on a constant infusion of government stimulus money to boost Walmart’s sales.

The company’s recently reported fiscal results appear to have depended on these government payouts to the people. And now, with expectations and complacency at high levels, it’s going to be a real challenge for Walmart to remain a market darling for much longer.

WMT Stock at a Glance

Suffice it to say that it’s not going to be easy for WMT stock to continue on its current trajectory.

The share price has literally doubled since mid 2017, and gained around 30% since March of last year.

Moreover, the stock is fairly close to its 52-week high of $153.66. Contrarians and value-focused investors should see some red flags here.

Now, I like growth stocks as much as anybody. However, I don’t recommend just buying any stock that has moved higher.

And, I certainly don’t suggest putting your hard-earned money toward a stock just because it’s a market darling.

Instead, focus on the facts — and in Walmart’s case, the facts might not add up to a bright near-term future.

The Problem With Optimism

When too many people are optimistic, that’s a setup for lower prices in stocks, not higher prices.

Don’t get me wrong — it’s tempting to buy stocks during peak optimism. Yet, the last thing you want is to be the last one in the long side of the trade if it starts to roll over.

In any case, Walmart CEO Doug McMillon certainly knows how to do his job as a company pitchman. “Our optimism is higher than it was at the beginning of the year,” he recently said.

Again, this could be a setup for disappointment in a future data release.

Furthermore, investors should ask themselves why McMillon is so confident. He recently admitted, “Stimulus in the U.S. had an impact, and the second half has more uncertainty than a typical year.”

That sounds like an explanation for the post-earnings jump in WMT stock — not a reason to be so optimistic about the future.

Sure, I’ll grant that stimulus payments boosted Walmart’s sales during the most recent quarter. But, is this a tailwind that the investors can count on indefinitely?

D.C. Starting to Pivot

Covid-19 relief payments to individuals undoubtedly helped some people in a time of need.

However, people shouldn’t count on these payments continuing forever.

When asked about the possibility of a fourth round of stimulus payments going out to American individuals, Raymond James Washington policy analyst Ed Mills didn’t mince words.

“I think it’s unlikely at this time,” Mills responded. With that, Mills observed a shift in priorities on Capitol Hill. “D.C. has largely started to pivot towards the recovery and an infrastructure bill,” Mills noted.

Mills’ comments weren’t directly about Walmart, but a letup in government generosity could certainly hamper the company’s sales and revenues.

Also, importantly, Credit Suisse analysts recently suggested that Walmart’s reliance on grocery sales could be problematic. Thus, the firm’s analysts “remain cautious on the food sectors because we expect grocery sales trends to decelerate in the 2H of 2021 as government stimulus spending runs out and consumers return to their normal eating patterns at work and school.”

The Takeaway

It’s easy to lean bullish on a stock when a company’s CEO is highly optimistic and the share price is high. However, that’s not necessarily a lead that investors should follow now.

At any moment, WMT stock could take a turn for the worse if optimism gives way to disappointment.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.


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