Walmart Stock Falls After Earnings: Should You Buy the Dip? |

Big-box retailer Walmart (WMT +0.52%) reported earnings last week, and they failed to impress investors. By the end of the week, the stock was down 8% on the news, pushing its valuation below the $1 trillion mark. Walmart has been a top stock to own in recent years and has been a bit of a safe haven investment given its diversified business model.

Its business remains solid, and the stock also offers a modest dividend that yields 0.8%. Is now a good time to add the blue chip stock to your portfolio?

Why have investors turned bearish on Walmart’s stock?

Walmart’s revenue looked good in the company’s most recent quarter, which ended on April 30, as it rose by more than 7% to $177.8 billion. That’s a solid growth rate in retail, where many businesses have struggled due to challenging economic conditions.

Investors, however, are growing concerned about the near-term and how rising oil prices may impact the business and its customers, as prices may keep rising. Walmart’s guidance reflects that nervousness, with the company projecting a net sales growth rate between 4% and 5% for the current quarter, and the range drops to 3.5% and 4.5% when looking at the full year. While the slowdown is modest, it’s a notable decline from the solid start to the year.

Investors wasted no time in dumping the retail stock due to the headwinds and uncertainty ahead. Its high valuation certainly didn’t help, either, as that may have given bearish investors even more of a reason to sell.

Walmart’s stock remains fairly expensive

Although Walmart’s stock went off a small cliff recently, it still trades at 42 times its trailing earnings, which is well above the S&P 500 average of 26. Investor bullishness has pushed the stock up to exceedingly high levels in recent years, and the problem is that when there’s any sort of trouble, that can result in a steep decline, as is the case now.

While Walmart’s valuation has come down, I still think it’s far too rich for a business that’s generating single-digit growth. Paying more than 40 times earnings for this type of company is a premium that is far too high, especially when there are other, more reasonably priced stocks to choose from.

For value-seeking investors, you may still be better off looking elsewhere for a deal. Walmart’s stock may be down, but there’s plenty of room for it to fall further given how expensive it still is.