Let's call this a teachable investing moment.
And I am going to use Walmart (WMT) as the subject.
There's nothing fundamentally wrong with Walmart — that's an important point here. I know you saw the stock get dinged on Thursday post-earnings and have the chart up on your screen next to global bond yields right now.
There are two reasons for the pullback in Walmart, and they have nothing to do with fundamentals — but it's all part of the investing game.
Reason 1: Expectations
Walmart has operated darn near perfectly for going on more than two years. Estimates are being crushed every quarter. Every outlook has generally pummeled estimates. Sales and profits have been off the charts. And the stock has run hard. Expectations have been elevated. Wall Street profit estimates have gone up.
More from Yahoo Scout Why did Walmart's stock drop after earnings? How are elevated expectations affecting Walmart's stock performance? What drove Walmart US same-store sales deceleration? What strengths does Walmart's business still show?
I'm not saying this was a perfect quarter for Walmart. It was not a perfect quarter for Walmart. But it was not a bad quarter for Walmart by any means, especially with Amazon (AMZN) breathing down its neck, both online and at Whole Foods (which is doing great, as I was reminded in a recent chat I had with Whole Foods CEO Jason Buechel). And the quarter came alongside analysts expecting too darn much.
That is a byproduct of Walmart doing good for more than two-plus years and of the Wall Street machine. If President Trump wanted to shake up financial reporting more, he would ban analysts from publishing financial estimates — the entire process is so stupid. A great quarter is going to hit the stock because earnings missed a random number produced from a spreadsheet or, nowadays, an AI agent?
Again, so stupid.
Reason 2: Sales at Walmart US
Now, Walmart's a global business. It operates in China, Mexico, all around the world. It has Sam's Club in the US that goes toe-to-toe with BJ's (BJ) and Costco (COST). But Walmart US is the main driver of this business. Same-store sales for Walmart US decelerated. Growth slowed versus the first quarter.
When you stack that up alongside those higher expectations, it's something the market didn't want to see. The market didn't factor that into Walmart's valuation.
"We feel good about how the business is doing overall. It's strong. We have seen some incremental pressure on the consumer, though, relative to the beginning of the year," Walmart CFO John David Rainey told me on Yahoo Finance's Market Catalysts. "And perhaps that's stating the obvious, with higher gas prices and the impact that they're feeling as we go through the last quarter, certainly when gas prices ticked up above $4 a gallon. I think there's a bit of a psychological impact to that. And we could see among our customers that they would be more choiceful, needing to make some trade-offs. And so I think everyone is looking for a lower level of gas prices, lower level of inflation overall. But the thing is, we're going to be there for our customers, whether wallets are stretched or if it's more of an expansionary type of economy."
