Given Walmart's (WMT) significant vulnerability to the increasingly K-shaped U.S. economy and high oil prices, along with the elevated valuation of WMT stock, investors should consider selling the shares before the firm reports its first-quarter financial results. The firm is slated to report its fiscal Q1 earnings on May 21.
Also importantly, if the giant retailer's Q1 results do come in below analysts' average estimates, WMT stock is likely to sink a great deal because the overall stock market has been quite weak in recent days.
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About WMT Stock
Specializing in discount retailing and wholesaling, WMT has in recent years expanded its advertising and e-commerce businesses. It was also an early and prolific user of AI in its operations.
So far in 2026, the shares have jumped 20.46%. WMT stock has a market capitalization of $1.06 trillion and a forward price-to-earnings ratio of 45.44 times.
www.barchart.com The Increasingly K-Shaped Economy Is Negative for Walmart
Recently, McDonald's (MCD) CEO Chris Kempczinski stated that the economic footing of lower-income consumers could be deteriorating amid elevated inflation and high oil prices. When Kempczinski says that consumers' positions may be weakening, it's a good bet that those have actually declined. Providing evidence for this assertion is data recently unveiled by TransUnion, which stated that lower-end consumers “are struggling more than they did.”
Given Walmart's significant reliance on lower-income consumers, that's not good news for WMT stock.
And while some may argue that the company could benefit from higher-income consumers trading down, it's reasonable to believe that, since inflation has been elevated for several years, many if not most of those who were going to trade down have already done so.
Higher Oil Prices Are Likely to Lower WMT's Already-Tight Margins and Could Undermine Its Ad Business
WMT's net profit margin in Q4 sat at a mere 3.07%. Of course, much higher oil prices likely increased its shipping and production costs last quarter. Consequently, the retail giant's profit margin probably declined meaningfully in Q1, dragging down its bottom line and scaring many investors. Indeed, already in Q4, before oil prices soared, WMT's net income sank 19.4% versus the same period a year earlier.
The company's rapidly growing, highly profitable ad business (the unit's revenue soared 37% in Q4 to $6.4 billion) has been the crown jewel of WMT stock in recent years. But elevated oil prices could put some tarnish upon said jewel, as one source warned at the end of March that “if the current energy shock persists and oil prices remain elevated, a meaningful share of…expected (global ad) growth could disappear.” While some strong digital ad players like Alphabet (GOOG) (GOOGL) may remain largely untouched by this phenomenon, WMT could be a different story, again because of its elevated exposure to lower-income consumers.
If the company's ad revenue growth slowed last quarter, WMT stock could take a serious hit.
Investors Are Not in a Forgiving Mood Right Now
The S&P 500 Index ($SPX) declined from $7,501.24 at May 14 market close to a $7,353.61 closing on May 19. Assuming that the downward trend continues until WMT delivers its Q1 results, the stock is likely to get hammered if the company disappoints investors in any way. That's especially true because its valuation is rather high, since most of its revenue still comes from selling staples and its profit tumbled in Q4.
To the extent that inflation and oil prices drop over the longer term, however, WMT stock is likely to seriously exceed its current levels.
On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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