Walmart Stock Has Been Sluggish This Year. Should You Buy it Before It Reports Earnings on Aug. 20?

Walmart (NASDAQ: WMT) stock had been on an incredible run until recently. The Dividend King, which has raised its dividend annually for the past 53 years, had been beating the market as investors bought into its safety and reliability.

That came to an abrupt end earlier this year when management cautioned that momentum may be slowing down. CFO John Rainey said that "the lower income consumer is more budget conscious and perhaps navigating financial distress," and noted that in general, if oil prices continued to rise, there may be further pressure in the next quarters.

Oil prices have been fairly volatile as the war with Iran drags on and off, and although they're still elevated from pre-war levels, they're lower than they were when Rainey made those comments. That implies there's reason to believe the situation may be better than management believed it would be at that time.

So back to the original question -- should you buy Walmart stock before it's next earnings update on Aug. 20?

Image source: Walmart.

The good times continues to roll

Rainey pointed out that the high-income consumer was still buying as normal in the 2027 fiscal first quarter (ended April 30). Walmart has been making a push to capture more of this market, which is an expansion for the discount retailer. Its core customer is the mass consumer, but its growing e-commerce business along with some upscale new owned brands are reeling in more affluent consumers. Recently, the affluent consumer has been responsible for a significant portion of Walmart's growth.

That helped Walmart produce a 7.3% year-over-year sales increase in the first quarter despite early indications of pressure on the lower-income consumer. It also likely played a role in a 26% increase in e-commerce sales, where transaction growth in the U.S. was the highest it's been in six quarters.

Management is guiding for second-quarter sales to increase 4% to 5% and operating income to increase 8.5% at the midpoint, and for the full year, it's expecting sales growth of 4% at the midpoint and operating income to increase 8%.

AI, advertising, and driving better margins

A company as big as Walmart has many levers to pull to generate growth and improve margins. While it's dealing with some potential sales fallout from higher oil prices, it's leaning into higher-margins areas to improve the bottom line.

It's using artificial intelligence to help customers shop, and its Sparky shopping agent is demonstrating positive results. Sparky users doubled from the previous quarter in the first quarter, and they spend on average 35% more than non-Sparky users. Walmart also has a competitive advertising business, and its marketplace and fulfilment is another growing, high-margin business. These initiatives have been successful in the U.S., and Walmart is rolling them out in other regions, starting with Canada and Mexico.

What's going to happen on Aug. 20

Walmart stock fell after the last earnings report, and it's up 4% year to date. If the company gives a more positive update, the stock is likely to rise again.

Image source: Walmart.

However, even at the current price, Walmart stock is fairly expensive. It trades at 41 times trailing 12-month sales, which is rich for a company growing revenue in the single digits. It's also above its three-year average of 37. The market is giving it a premium for its reliability under almost any conditions, and it's not trading at an especially attractive price right now.

If management warns of further pressure, the stock could fall again. Even if it does jump after earnings, the reason to buy it would be for the long-term stability and value. Walmart is dependable for growth and steady margins, and as a Dividend King, it has a reliable and growing dividend. Over many years, it's likely to create shareholder value.

Jennifer Saibil has positions in Walmart. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.