Is Walmart Stock Built to Withstand the Next Economic Downturn?​

Economists aren't sure what will happen with the U.S. and global economies. Certain prognosticators see a weakening domestic labor market as an indicator that economic growth will slow, and forecast a recession will soon be upon us.

However, even if it doesn't occur in 2026, at some point, the U.S. will enter a recession. That will undoubtedly hurt stock prices.

But not all companies, and hence stock prices, will be affected the same way during a slowdown. While many retailers' sales have already been hurt by consumers stressed by higher prices and an uncertain job market, how will venerable retailer Walmart (NASDAQ: WMT) fare?

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Understanding the business

Walmart consists of its namesake stores around the world and a membership warehouse club, Sam's Club. The U.S. Walmart business makes up most of the company's revenue.

Opening its first retail store in the early 1960s, Walmart has mastered the art of charging low prices to customers. In fact, shoppers would be hard-pressed to find lower prices. Walmart does this by keeping an extremely tight rein on costs.

It also makes technology investments to keep up with competitors, including behemoth online retailer Amazon. These tend to focus on making shopping at Walmart more convenient, such as same-day pickup and delivery. Most of this year's capital expenditures went toward supply chain, customer-facing initiatives, and other technology.

Management's focus on low prices and convenience continues to resonate with customers. The Walmart U.S. division's fiscal third-quarter same-store sales (comps) increased 4.5%. Higher traffic contributed 1.8 percentage points, and increased spending accounted for the balance. The period ended on Oct. 31, 2025.

Management stated that it drew higher-income consumers during the quarter. This also happened during the Great Recession as the wealthier demographic sought bargains. I believe Walmart's low prices will continue to drive shoppers during the next economic downturn.

Rich valuation

Shareholders have done well by investing in Walmart's stock. The shares gained 31.2% over the past year through Jan. 14, outpacing the S&P 500 index's 19%.

The company's past success has created high expectations for future growth. Walmart's stock trades at a price-to-earnings (P/E) ratio of 42, compared to 37 a year ago. It also sells at a richer valuation than the overall market, with the S&P 500 trading at a P/E multiple of 31.

However, given the company's success, ability to succeed in all kinds of economic environments, including recessions, and its investment to keep it ahead of the competition, I believe a higher multiple is warranted.

That's why I'd be willing to pay up for Walmart's shares.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.