To The Moon

$Wal-Mart(WMT)$

Over the past few years, Walmart has been on an impressive run. The retail giant not only streamlined its core operations but also managed to outmaneuver competitors—even Amazon—in key areas like logistics, supply chain management, and e-commerce. Innovations such as buy-online-pickup-in-store (BOPIS), optimized last-mile delivery, and its expansion into high-margin ad revenue streams were all contributing to what looked like a structural transformation of Walmart into a more modern, tech-enabled retail powerhouse.

But despite this operational success, external forces have recently shaken investor confidence.

On the back of newly implemented tariffs from the Trump administration, Walmart's stock has taken a hit. It dropped 4.62% today, reflecting not just company-specific pressures but also a broader market decline. This decline raises a crucial question: should investors view this as a red flag—or a rare opportunity to buy a high-quality company at a discount?

Let’s break this down from several angles: macroeconomic forces, valuation changes, business fundamentals, and ultimately whether or not Walmart is a buy, sell, or hold right now.

The Macro Picture: Tariffs and Global Trade Disruption

At the heart of the current pressure is the United States' new tariff policy, particularly targeting imports from China. These new duties—some exceeding 50%—directly affect companies that rely on international supply chains. Walmart is among the most exposed.

Walk into any Walmart store and you’ll notice: a significant portion of the merchandise isn’t made in the United States. Much of it comes from China and other low-cost manufacturing hubs around the world. That global sourcing strategy has historically allowed Walmart to keep costs low and prices competitive—a cornerstone of its business model.

But now, tariffs are raising the cost of those goods. Walmart either has to absorb those costs, which squeezes profit margins, or pass them onto consumers, which risks alienating price-sensitive shoppers.

Neither option is ideal. And investors are reacting accordingly.

Reassessing Walmart’s Valuation: DCF Insights

From a valuation perspective, I’ve made a few recent updates to my Discounted Cash Flow (DCF) model for Walmart, reflecting changes in the broader economic environment.

One major change? The risk-free rate—typically represented by the yield on the 10-year U.S. Treasury bond—has fallen sharply over the past few days, from about 4.3% to below 4%. This has a notable impact on DCF models, since future cash flows are discounted at a rate partially determined by that yield.

Here’s why this matters: investors always have choices. If you can earn 4% (or more) from a government bond with almost no risk, you’re going to demand a much higher return from stocks to compensate for their risk. That’s why lower bond yields often support higher equity valuations.

So after adjusting my DCF model for:

• The lower risk-free rate

• Walmart’s updated beta (volatility vs. the market)

• Revised future free cash flow projections

...the new intrinsic value per share comes out to $101.73.

Walmart’s current market price is around $83, implying the stock is trading below its fair value based on these inputs. On a purely DCF basis, Walmart looks undervalued.

What About Valuation Multiples?

DCF is just one lens. When you look at Walmart’s valuation through the more commonly used forward price-to-earnings (P/E) multiple, the story becomes a bit more nuanced.

Right now, Walmart is trading at a forward P/E of 28. That’s come down from over 30 a couple of weeks ago, but it’s still a relatively high multiple—especially for a company operating in the low-margin retail space.

For context, Amazon—once considered the gold standard for high-growth retail—is trading at a lower forward P/E than Walmart in some cases, depending on adjustments. That’s unusual.

So while Walmart might be undervalued based on DCF, it still carries a premium relative to its sector peers based on earnings multiples. That premium could reflect investor confidence in Walmart’s digital transformation and logistics capabilities—but it also leaves less room for error in an increasingly uncertain environment.

Business Fundamentals: Strength Meets Pressure

Walmart’s long-standing strength lies in its scale and supplier network. It has decades of experience building relationships with vendors to provide low-cost goods to consumers. That ecosystem has been one of its key competitive advantages.

However, the tariffs directly attack this edge. With more than half of its supplier network outside the United States, Walmart now faces higher import costs on a wide range of products. While the company may negotiate with suppliers to mitigate some of the pain, it’s unlikely to escape the financial hit entirely.

In response, Walmart will need to raise prices on consumers. That’s where things get complicated.

The Consumer Response

When prices rise, demand tends to fall—basic economics. But the effect is more pronounced in today’s economic climate than it was a few years ago. Back during the COVID-19 inflation surge, government stimulus helped consumers absorb higher prices. People might not have liked paying more, but they had the cash.

That cushion is now gone.

Today’s consumer is stretched thin. Wages haven’t kept pace with inflation, and there’s little financial support coming from Washington. As a result, we’re likely to see fewer impulse purchases, more product trade-offs (e.g., store-brand instead of premium), and smaller average basket sizes per trip.

So while Walmart might attract more foot traffic as price-conscious consumers seek out deals, the average amount each customer spends could either stagnate—or decline.

This creates a tug-of-war in the business model:

• More shoppers might help revenue

• Lower per-shopper spend could cap profitability

• Higher costs from tariffs pressure margins

• Ad revenue and online logistics might partially offset, but not fully

It’s a complex equation, and it’s why I believe Walmart—normally a defensive, low-risk stock—has entered a higher-risk phase.

The Verdict: Buy, Sell, or Hold?

So what should investors do?

Here’s where I land:

• If you own Walmart stock, I don’t believe this is a reason to panic and sell. The company remains operationally sound, and in the long run, it’s still one of the best-run retailers in the world.

• If you’re considering buying Walmart stock, I would say hold off for now. The valuation is still a bit rich relative to the near-term uncertainty. And remember, this is a stock that is usually seen as stable—so increased risk isn’t something to take lightly.

I’ve rated Walmart as a Hold, and that hasn’t changed. The company is navigating a tricky situation well, but the macro environment is murky, and it’s difficult to know just how consumer demand will evolve in the face of higher prices and tighter household budgets.

For now, I’d keep Walmart on a watch list. If the stock drops further—say, into the mid-to-high $70s—and/or we get more clarity on how consumers are responding, that could represent a much more compelling entry point.

But at a forward P/E of 28 in a tougher economic environment, it’s simply too early to call this a buy.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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