Walmart hit an all-time high on May 19th, then dropped more than 15% from that peak. On the day of this discussion it was trading lower again, off roughly 1.7%. The obvious question is why a company this dominant would slide so hard, and the answer splits cleanly into two tracks that are worth separating: how the business is actually running, and how investors feel about the price they're paying for it.
Fundamentals Versus Investor Sentiment
The business itself is fine. Walmart is humming along and doing what it has always done during periods of economic stress, which is capture the trade-down effect. When money gets tight, shoppers move down to Walmart, and a good share of them stay. People walk in expecting the Walmart of 20 or 25 years ago and come away pleasantly surprised, because the stores are far better than they used to be. When the economy booms, the flow reverses in Walmart's favor too, because the dollar-store customer trades up into its aisles. That two-way pull is why it sits close to being recession- and inflation-resistant. Calling any retailer "recession proof" or "inflation proof" is a stretch, but if one company earns that label, it's this one.
The strain is on the investor side, and it comes down to the multiple. Walmart's P/E is sitting in the high 30s, which puts it above Amazon's, currently in the low 30s. That relationship has essentially never held before over a long span of watching the company. Costco trades in the high 40s, TJX in the low 30s. So investors are looking at Walmart in the high 30s and starting to say the price got a little lofty relative to earnings. The pullback isn't a verdict on the operation. It's a verdict on a valuation that ran a bit rich, and there's nothing wrong with how the company is being run right now.
What Would Change Investor Minds
Several forces are pushing on the stock at once. If you rank-order retailers as an equity investor, some people simply prefer Costco and always have. Walmart also carries a history of heavy-investment periods that spooked the market. More than a decade ago, at an investor meeting, management committed to a long-term investment bet, and the stock got crushed, dropping 10% in a couple of hours. That bet is paying off in spades now, but the memory lingers, and the market has long looked at Walmart with a side eye.
Part of that skepticism is cultural baggage. There was a stretch when Walmart was cast as the villain gutting Main Street, and it became a poster child for negative developments in retail. Amazon has caught the same brush at times. Both characterizations are unfair. The plain evidence sits in the sales figures: consumers clearly like the stores, or the company wouldn't be moving the volume it moves.
A recurring question over the years has been how Walmart competes with Amazon, and the framing deserves to be flipped. Walmart is still the most powerful retailer in the world, has been for years, and will stay that way for a long time. It operates almost 11,000 physical locations worldwide, 5,200 of them in the US. That is an enormous distribution platform, and it's finally being unlocked. The online business is running hard, with mid-20s e-commerce growth in the first quarter, a rate that beats some of the periods Amazon has posted. E-commerce sales grew 24% globally in the most recent fiscal year. The stores are where the e-commerce value is being unlocked, turning that vast physical footprint into a fulfillment and delivery advantage rather than a liability.
Technology, Advertising, and the Layered Business
The move into advertising and tech-based initiatives is exactly what has to happen. Walmart was early in technology, though it kept quiet about it. Twenty years ago the company built an operation in San Bruno, California, that is still driving the bus on the tech side today. It was early on RFID, which went nowhere because consumer-products companies never adopted it, but the tech focus was always there. The acquisition of Jet got the e-commerce business blowing up. The AI assistant Sparky is pulling order values 35% higher than non-users, which leans the company into higher-margin activity.
The concern investors have carried is one of complexity stacked on complexity. Walmart runs a massive store network, builds an e-commerce business on top of that, and now builds a tech adjunct on top of both. That layering looks daunting, but it's the right direction. Take advantage of the customer base, add programs like Walmart Plus membership, and keep extending. The company is as well positioned competitively as it has ever been, which is a frightening thing to face if you're a competitor.
Look at Kroger as the contrast. Greg Foran is a terrific manager and the company has made some great moves, but it has real issues, while Walmart keeps humming along on the food side. Food is the engine of traffic. The old retail adage holds that people shop for food 15 more times a year than for anything else, and that frequency drives significant store traffic. Sam's Club, long a solid performer, is now performing even better. From a pure fundamental standpoint, separate from any investor thesis, this company is an absolute Goliath and will keep being one.
The analyst community reflects that conviction even if the price action doesn't. Across more than 40 ratings, a large cohort sits in the buy camp, with about a dozen at strong buy. The stock has come well off its all-time highs, but Wall Street conviction has held.
The Options Trade on the Pullback
The stock had fallen nearly 19% from its May post-earnings all-time highs, dropping close to bear-market territory, which reads as a bit of a head-scratcher given that consumers are holding up and the grocery business remains intact. That decline sets up a few ways to play it.
The simplest is to buy the shares outright, and at these levels you're buying at a discount to where the stock traded just a couple of months ago. A more structured approach is a cash-secured put, which is a neutral-to-bullish position. If the stock keeps falling, you end up buying shares at a lower entry point, which you were willing to do anyway. If it doesn't fall below the strike you sold, you keep the credit you collected.
The specific trade goes out to the July 31st weekly option series, about 25 days to expiration, and sells the 109-strike put, which sat just out of the money to the downside by about a dollar. The credit collected runs around $2, probably closer to 230 as the stock kept drifting lower. That credit is the potential profit. The break-even is 107, meaning you're willing to own the shares at that price if the stock slides below 109 over the next three and a half weeks.
The strategy is capital intensive, because you might have to buy the shares. If the stock stays above 109, you can let the put expire worthless or buy it back cheaper, then repeat the process, picking a strike you expect the stock to hold above if the goal is simply collecting premium. At these levels the trade carries roughly a 2.8% cushion to the downside before hitting break-even, and the probability that the 109 strike finishes out of the money at expiration is about 55%. The appeal is that a plain 107 limit bid on Walmart might never get filled, whereas this structure lets you pay 107 if the stock drops below 109, or profit outright if it holds above that level.
A Closing Market Note
On the broader tape, the Dow sat within arm's length of 53K, and the session was a chip-driven one. It was the reverse of the rotation trade from the prior week, with money piling back into beaten-down names in the memory-chip space. Intel and AMD were doing really well while the Dow lagged a little. The encouraging read is that investors aren't fleeing the market across the board; they're reallocating. Rotation, rotation, rotation.
