Walmart stock is recommended as a long-term hold

Walmart has faced a significant drop in stock price, losing nearly 20% since its high in February. This situation is occurring amid ongoing inflation, which is impacting consumer spending habits. The company remains a popular choice for shoppers looking for good deals. In its latest quarterly earnings report, Walmart announced revenues of $180.6 billion, marking a 4.1% increase compared to last year. However, its net income fell from $5.7 billion to $5.3 billion due to rising costs in sales and operational expenses. A portion of these costs is attributed to the increase in e-commerce sales, which now make up 18% of Walmart's total sales. Walmart continues to focus on returning capital to its shareholders. Half of its profits are spent on dividends and share buybacks. The company has consistently increased its dividend for over 50 years, with a recent hike of 13%. It also has a favorable payout ratio of around 34%, which allows for potential future increases without risking financial strain. Looking ahead, CEO Doug McMillon expressed cautious optimism about fiscal year 2026. The company forecasts net sales growth of 3% to 4%, but expects little growth in earnings per share from last year. Challenges such as rising unemployment and uncertain economic conditions are noted, but Walmart believes it can navigate these issues. Investors should consider Walmart's stock carefully. Its price-to-earnings ratio currently stands at 35.6, higher than its five-year average of 31, indicating that it may be overvalued. Additionally, while the company has reduced its net debt, it still carries $30 billion in debt. Overall, Walmart may not be an immediate "buy" due to its high valuation and slow earnings growth, but its reliable dividends make it a good long-term hold for income-focused investors.