Walmart Stock Is Taking a Turn for the Worse

It’s time to take a close look at Walmart (NYSE:WMT) stock. The world’s biggest retailer does a lot of things right and brings in annual sales of more than $500 billion.

Walmart (WMT) sign on front of Walmart store at sundown
Source: fotomak / Shutterstock.com

But there are also some significant red flags waving for Walmart right now. They suggest that for a short-term return, Walmart isn’t the best place to put your money.

I admit, the times are changing rapidly for Walmart. Less than two months ago WMT stock had a “B” rating in my Portfolio Grader, and I was advising readers that they can “sleep well at night” with Walmart.

I also added Walmart to my list of hot retail stocks and my list of mega-cap stocks with solid foundations.

But investing can be a fickle business. That’s why it’s important to review your portfolio and make adjustments when necessary, to make sure you have the best growth stocks available to help your portfolio. It’s also why tools like my Portfolio Grader are so essential to investors to help you evaluate stocks.

After a year of riding high with overall “A” and “B” grades, Walmart stock has fallen all the way to the bottom. It now has a “D” grade in Portfolio Grader, with near-failing marks in operating margin growth, earnings growth, earnings momentum and cash flow. Additionally, it has a sell recommendation.

Let’s see what’s happening with Walmart.

An Underperforming Stock

So far this year, Walmart is down 1.5%, badly trailing the rest of the market. The Dow Jones Industrial Average shows a 11.5% gain in 2021, and the S&P 500 is up 11.6%.

Even when compared to its biggest competitors, Walmart has been a disappointment. Target (NYSE:TGT) is up a solid 19.6% in 2021. And Amazon (NASDAQ:AMZN), which is probably Walmart’s biggest competitor in both retail and e-commerce, is up 4% this year.

Earnings have also been a disappointment. In March, Walmart reported fiscal fourth-quarter earnings that failed to meet Wall Street’s expectations. Walmart said it posted a loss of $2.09 billion, versus earnings of $4.14 billion in the same quarter a year ago.

The loss of 74 cents per share in the quarter ending Jan. 31 was also much worse than the earnings per share (EPS) of $1.45 per share a year ago.

Walmart blamed the losses on its U.K. and Japanese operations, which it says reduced earnings by $2.66 per share. Excluding those losses, the company would have earned $1.39 per share. That is better, but even that is below analysts’ expectations of EPS gains of $1.51.

Meanwhile, the company is increasing expenses dramatically. It plans to make about $14 billion in capital expenditures this year, which would be an increase from $10 billion to $11 billion. CFO Brett Biggs said the company is investing in supply chain improvements and automation. Additionally, it is trying to improve the customer experience.

Walmart is also increasing wages of U.S. employees to more than $15 per hour.

How Does Walmart Replace Pandemic Spending?

One of the biggest challenges for Walmart in 2021 is trying to maintain its market share as Covid-19 vaccines roll out and some level of normalcy returns in the U.S.

Walmart benefited tremendously from pandemic-era spending as people stocked up on cleaning supplies and groceries while they were staying home.

Now, as travel in the U.S. begins to increase and workers start going back to their offices, Walmart has to figure out a way to keep shoppers from continuing to spend at their stores, either in person or via e-commerce channels.

Walmart has already acknowledged that it expects sales to moderate this year, and that admission alone has contributed to the company’s weak stock performance.

One possible avenue is its Walmart+ subscription service that launched in the fall. Management is optimistic that the service, which costs $12.95 per month or $98 annually, will provide a consistent revenue stream for WMT stock.

The Bottom Line for WMT Stock

Walmart has been a consistent winner, and the stock did well in 2020 even during the Covid-19 pandemic. But now it will be a challenge for Walmart to continue to hold its gains in the post-pandemic economy.

I appreciate that Walmart management is investing with an eye to the future and those investments may very well pay off in the long-term.

But if you are looking for a short-term boost for your portfolio, Walmart isn’t the stock for you right now.

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

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