- Walmart stock has rebounded in the past few weeks.
- The company’s main challenge is that it is highly overvalued.
- Technical analysis suggests that it may rebound to $130.
Walmart stock has crawled back in the past few days, moving from a low of $102 in September to $117 today. This rebound happened as investors bought the dip following its weaker-than-expected results in August. Still, the company faces some major valuation concerns, especially now that its growth is slowing.
Walmart Stock Confronts Valuation Risks
A key risk facing Walmart is that it is one of the most overvalued companies in the retail industry. It attracts its rich valuation because of its role in the US retail industry, where it has a commanding market share in the industry.
Seeking Alpha data shows that the company trades with a forward price-to-earnings multiple of 41. This multiple is much higher than the retail sector average of 14, and its five-year average of 31. In contrast, Target has a multiple of 14, while Kroger and Dollar Tree have multiples of 12 and 21.
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Walmart is also undervalued based on other metrics. It has a forward EV-to-EBITDA multiple of 20, also higher than other top retailers.
Its valuation is also much lower than most fast-growing companies in the AI industry, including Micron, SanDisk, Nvidia, and Western Digital. All these companies are experiencing double- or triple-digit growth rates as the artificial intelligence (AI) boom has continued.
In contrast, Walmart’s growth has been relatively slow, which is understandable since it is in a traditional industry. Yahoo Finance data shows that the average estimate among analysts is that its revenue jumped by 5.3% to $187 billion. For the year, its revenue is expected to be $752 billion, up by 6.5% YoY, followed by $785 billion.
The last earnings results showed that its revenue rose by 5.9% in Q2 to $187 billion, with its e-commerce segment experiencing most of the growth. It was followed by its membership and other income, which account for 17% of total revenue.
Walmart Share Price Technical Analysis
On the charts, we see that WMT stock formed a double-top pattern at $133.60, its highest swing in February and May. This pattern explains why the stock made a bearish breakout to $102.08.
Walmart is now attempting to rebound and has already moved above the first support of the Andrews pitchfork tool. It has also jumped above the double-top’s neckline at $117.62.
Also, it has moved above the 50-day and 200-day Exponential Moving Averages (EMA). Therefore, the stock will likely continue rising as bulls target the psychological level of $130.
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