How Inflation Could Subvert Walmart’s (WMT) Lofty Valuation

As U.S. consumer spending softens, the world’s largest retailer is priced as if its business cycle is immune to downturns. For decades, Walmart (WMT) has served as the market’s go-to defensive play—a safe harbor when the macro outlook turns murky. Yet today, the stock is valued more like a high-growth tech name than a mature retailer. The stock has outpaced the S&P 500 (SPX) over the past three years.

Although Walmart’s recent results have been strong, the company is likely to feel the strain of declining consumer purchasing power, which could become a meaningful headwind at its current premium valuation. That’s why I’m taking a contrarian view and turning Bearish on the stock.

A Cooling Consumer Poses Real Risks for Walmart

My case for a weakening U.S. consumer isn’t based on sentiment—it’s grounded in data. Retail sales are still rising, but at a slowing pace. In September, sales grew just 0.2% month over month—about half the rate of August and below expectations—as higher prices and a softer labor market made shoppers more cautious. Consumer confidence has also slipped sharply: the Conference Board’s index fell to 88.7 in November from 95.5 in October, its lowest level since April, with households citing high prices, tariffs, and political uncertainty.

Looking ahead, forecasts increasingly reflect a cooler consumer environment. Morgan Stanley (MS) expects U.S. consumer spending growth to drop to roughly 3.7% in 2025 from 5.7% in 2024, with lower- and middle-income households feeling the most pressure. Even Home Depot’s (HD) latest results—showing middle-income shoppers pulling back on larger projects—suggest the slowdown is moving up the income ladder.

This presents a double-edged setup for Walmart. About 60% of its U.S. sales come from food and other essentials, making it a “trade-down” beneficiary when budgets tighten. But if the overall pie stops expanding, even the most affordable big-box retailer eventually runs out of market share to capture. Meanwhile, the sales mix skews further toward low-margin staples and away from higher-margin discretionary categories.

Warning Signs Already Showing in Q3 FY26

At first glance (and evident by the subsequent rally), last week’s report from Walmart looked textbook-bullish. For the period ending October 31st, the company’s revenue rose 5.8% to $179.5 billion, with U.S. comparable sales up 4.5% and global e-commerce up 27%. Ad revenue grew 53%, and adjusted operating income increased 8%, prompting management to raise full-year net-sales guidance to 4.8–5.1% and adjusted operating income growth to 4.8–5.5%.

Look a little closer, though, and you can see the pressure on shoppers that negatively affected those numbers. CEO Doug McMillon told investors that while middle-income households remain “steady,” lower-income families are “under additional pressure,” thus prompting Walmart to lean harder into price rollbacks on essentials. CFO John David Rainey has gone further in recent interviews, warning that America’s “affordability crisis” is worsening as the gap between low- and high-income customers widens.

The mix of sales further supports that message. Grocery and health-and-wellness delivered tangible unit growth, while more discretionary general merchandise remained soft. As a countermeasure, Walmart is trying to effectively buy loyalty as it now has about 7,400 active rollbacks in the U.S., more than half in grocery, and many temporary discounts are becoming new everyday prices. Yes, it’s what the moment demands, but it also caps the operating leverage that today’s valuation assumes.

A Multi-Decade Multiple on Thin Ice

This brings us to Walmart’s valuation, which, in my view, is bordering on the absurd. The stock is now trading at a forward P/E of 38x, a multi-decade high level. For context, the stock’s average P/E over the past decade was in the high 20s, reasonable for a defensive name that carried a modest premium given its qualities and growth profile.

The last time Walmart traded at today’s valuation was around the dot-com bubble in the early 2000s, and to show how that was a headwind to the share price for years, it took Walmart 18 years to rally past its 1999 high, as a multi-decade P/E compression was slowly (and distressingly) offsetting and bottom-line growth for almost two decades.

Why are investors paying that much today? I think it partly has to do with Walmart becoming the go-to macro hedge as it gains share across income cohorts. Also, its e-commerce arm has registered 20-plus percent growth for seven consecutive quarters, and high-margin businesses such as retail media are scaling quickly. There is also an upcoming shift of its listing to Nasdaq (NDAQ), along with the CEO transition, both of which are framed around AI and automation.

However, I still don’t think that Walmart’s EPS growth can jump to, say, 20%+ over the medium term, a point that would actually justify today’s multiple. Note that consensus estimates point to an EPS CAGR of around 8% over the next five years, which, at least in my view, is unlikely to justify today’s multiple. A meaningful multiple compression, therefore, appears quite possible.

Is Walmart a Good Stock to Buy Now?

Walmart currently has a Strong Buy consensus on Wall Street, based on 26 unanimous Buy ratings. In fact, no analyst rates the stock a Hold or a Sell. At $121.92, the average WMT stock price forecast implies upside of ~12% over the next 12 months, which seems rather bizarre given how lofty the stock’s valuation is already.

See more WMT analyst ratings

Walmart’s Strong Run May Have an Expiry Date

For now, Walmart is executing almost flawlessly, and the market is pricing the company as if that streak is permanent. But when a fundamentally average growth trajectory collides with an exceptional valuation—and a consumer showing clear signs of fatigue—there’s a limit to how long the disconnect can last. Even the most reliable retailer isn’t immune to financial realities, and at some point, the share price has to realign with slowing demand and tighter margins.