Walmart Inc. (WMT Quick QuoteWMT - Free Report) shares have declined 11.8% over the past three months, reflecting a cautious investor stance despite the retail giant’s solid business momentum. The stock has fared slightly better than the industry’s 13.9% fall but has significantly underperformed the Zacks Retail – Wholesale sector’s 0.1% growth and the S&P 500’s 2.4% gain over the same period. 

WMT’s pullback comes as investors weigh rising operating costs, pressure on lower-income consumers and elevated investment spending against Walmart’s healthy sales trends and expanding digital ecosystem. 

Walmart stock has also underperformed several major competitors such as Target Corporation (TGT Quick QuoteTGT - Free Report) , Dollar General Corporation (DG Quick QuoteDG - Free Report) and Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) . During the past three months, shares of TGT and DG have rallied 26.8% and 17.5%, respectively, while COST tumbled 8.1%.

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What’s Hurting Walmart Stock?

Elevated fuel costs have emerged as a significant near-term concern for Walmart. Higher fuel expenses across the company’s distribution and fulfillment network are putting pressure on profitability, even as sales continue to grow. In the first quarter of fiscal 2027, adjusted operating income increased 5.1% on a constant-currency basis, trailing the 5.7% growth in constant-currency net sales. Walmart attributed the gap partly to higher fuel costs and expense deleverage.

Meanwhile, operating expenses remain another pressure point. Adjusted operating expenses as a percentage of net sales increased 23 basis points to 21.1% in the first quarter. Higher depreciation related to capital investments and increased U.S. healthcare expenses stemming from higher enrollment and medical-cost inflation contributed to the deleverage. These expenses could constrain the pace of profit expansion if cost pressures remain elevated.

The consumer backdrop is also uneven. Management indicated that higher-income customers continue to spend confidently across several categories, while lower-income shoppers are more budget-conscious and may be experiencing greater financial stress. Walmart cited reduced fuel purchases as one indication of pressure among some consumers. Persistently elevated fuel prices could further squeeze household budgets and affect discretionary spending.

At the same time, Walmart continues to emphasize value and invest in pricing. The retailer had about 7,200 rollbacks in place during the quarter. While competitive pricing can strengthen traffic and market share, balancing price investments with higher operating and transportation costs remains important for margins.

Walmart’s Growth Drivers Remain Encouraging

Despite these challenges, Walmart continues to demonstrate healthy underlying business momentum. First-quarter fiscal 2027 revenues rose 7.3% to $177.8 billion, while constant-currency revenues increased 5.9%. Net sales grew across all segments, and global e-commerce net sales advanced 26%, accounting for 23% of total net sales.

The company’s omnichannel infrastructure should remain an important long-term advantage. Walmart is leveraging its vast store and club network to accelerate fulfillment while increasing automation across its supply chain. Roughly half of Walmart U.S. e-commerce fulfillment-center volume is automated, and more than 60% of stores receive some level of freight from automated distribution centers.

Meanwhile, higher-margin businesses such as advertising and membership continue to scale. Global membership fee revenues grew 17.4% in the first quarter, while advertising remained a strong contributor to the evolving business mix. These businesses, alongside Marketplace expansion, can help improve Walmart’s long-term earnings profile.

Walmart’s Premium Valuation Warrants Caution

WMT is trading at a forward P/E multiple of 37.58, above the industry’s 33.43 and considerably higher than its five-year median of 24.52. The premium valuation suggests that significant growth expectations remain embedded in the stock, leaving limited room for execution setbacks.
 

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Walmart also trades at a significantly higher multiple than Target and Dollar General, which currently have forward P/E multiples of 17.89 and 15.51, respectively. Meanwhile, Costco trades at an even higher multiple of 42.38.

WMT Earnings Estimates Move South

The Zacks Consensus Estimate for Walmart’s current and next fiscal-year EPS has moved downward over the past 30 days. The negative estimate revisions signal increased caution surrounding the earnings outlook and become more relevant, given WMT’s premium valuation.

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Should Investors Play Safe With Walmart Stock?

Walmart’s strong market position, expanding e-commerce business, advertising momentum and growing omnichannel capabilities support its long-term prospects. However, higher fuel and operating costs, pressure on lower-income consumers and elevated investment spending warrant caution. Downward earnings estimate revisions come at a time when WMT continues to trade at a considerable premium to its industry and historical valuation. While Walmart’s fundamental strengths remain intact, the combination of earnings uncertainty and a demanding valuation suggests that investors may prefer to stay on the sidelines for now.

Walmart currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.