U.S. Markets open in 8 hrs 29 mins

Why Walmart Stock Plunged Today

Jeremy Bowman, The Motley Fool

What happened

Shares of Walmart (NYSE: WMT) were tumbling today after the retail giant posted disappointing results in its fourth-quarter earnings report. Growth in the hot e-commerce division slowed and the company reported a lower-than-expected profit for the key holiday quarter. As of 11:01 a.m. EST, the stock was down 9.8%.

A Walmart employee stocks items in the produce section.

Image source: Walmart.

So what

The stock's slide may have had more to do with inflated expectations than weakening performance as strong comparable sales (comps) continued. At Walmart U.S. stores, comps were up 2.6% on a 1.6% increase in traffic, and the chain reported its best two-year comparable-sales growth in eight years at 4.4%. Sam's Club, meanwhile, saw comp sales increase 2.4% with traffic up 4.3%. 

Still, U.S. e-commerce sales growth slowed to just 23%, down from 50% in the third quarter, as the company lapped its acquisition of Jet.com in the third quarter of 2016. Overall revenue increased 4.1%, or 3.1% in constant currency to $136.3 billion, topping analyst estimates of $135 billion. However, adjusted earnings per share did not grow as fast expected, improving from $1.30 to $1.33, but missing estimates at $1.36.

CEO Doug McMillon said the company had "good momentum" and "solid sales growth" across its three divisions: Walmart U.S., Sam's Club, and Walmart International.

Now what 

Despite the slowdown in e-commerce sales, management was still optimistic about the current year, sticking with its prior guidance of 40% online sales growth. The company forecast EPS of $4.75-$5.00 in fiscal 2019, up from $4.42 last year, and expects solid comparable sales growth to continue, projecting an increase of 2% at Walmart U.S. stores.

With the company still projecting robust growth for the coming year, it seems like investors could be taking profits following the stock's 43% gain in 2017. 

At the high end of its earnings guidance, Walmart shares now trade at a forward price-to-earnings of less than 20. If management can execute on that guidance, the stock should gradually recover.

More From The Motley Fool

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.