The world's largest bricks-and-mortar retailer hit a wall last month. That won't last.

Shares of Walmart had their worst day in nearly half a decade on Aug. 20 after the company reported fiscal second-quarter earnings. The report itself had its good and bad points, but it wasn't a welcome update at a time when ongoing inflation has investors worried about consumers' spending power, particularly at the lower end of the income spectrum. After years of outperformance, Walmart faced high expectations to boot, and its stock took it on the chin.

That selloff looks like an opportunity, given the company's ongoing dominance in retail, as well as its growing ancillary revenue streams that should help it keep winning.

"Walmart's market share in some categories is breathtaking," says John San Marco, senior research analyst at Neuberger Berman, which owns the shares. Its blistering pace of same-store sales gains in recent years has lessened a bit, "but it's still quite healthy, and healthy enough that I don't see a change in the underlying fundamentals."

The quarter wasn't perfect. Walmart's third-quarter outlook was below expectations, its large pharmacy business meant that mandated lower drug prices hit its top-line results, and higher fuel-related costs remain a headwind that will persist with the oil price spike. Comparable sales growth in the U.S. was at its lowest level in years, at 2.6%, below 4.1% in the prior quarter and 4.6% in the year-ago period.

Nonetheless, investors may be overreacting, given that there was still plenty of good news in the results, as well.

"If we blindfolded you," posits Gimme Credit's Carol Levenson, "and told you that Walmart had beaten its sales and earnings guidance for the fiscal second quarter ended July 31 and raised its fiscal 2027 sales, operating income, and earnings guidance, while continuing to gain market share and expand its margins, and generating more than enough free cash flow to fund $3 billion in share repurchases, you would probably guess its stock rose on the news."

Instead, the stock plunged nearly 10% and is still trading more than 7% below where it did on the day before the results. It's also down on a year-to-date basis.

If nothing else, that at least resets the bar at a more reasonable level. Consensus estimates for fiscal-2028 earnings per share have come down by about a dime in recent months, to $3.23-that's still a double-digit year-over-year increase for Walmart's bottom line-meaning that although "the market may take some time to digest the lower comparable sales, we think the majority of the downside to EPS revisions is already baked in," wrote Jefferies analyst Corey Tarlowe.

Certainly, some excess has come out of the company's admittedly plush multiple. The shares now trade for less than 33 times next year's earnings, down from their five-year average of 35 times.

Yet San Marco argues that the company still deserves to trade at a premium. It can keep winning in its core retail businesses, he says. And its fast-growing noncore businesses, such as Walmart+ membership fees and advertising, are "coming together in precisely the way Walmart envisioned 10 years ago when it set out to become a tech power retailer," he wrote. "The takeaways from those in the second quarter were every bit as fantastic as they have been...they all remain really exceptional."

Walmart also trades at a discount to Costco Wholesale, when the pair used to trade much more closely.

D.A. Davidson analyst Michael Baker likes the fact that Walmart is using its tariff refunds to lower prices, a move that "should drive some third-quarter comparable improvement, but more importantly, increased share gains longer term." He says shares should trade to $132, about 25% above Wednesday's close of $105.83.

That said, Walmart's revival might take some time to materialize. The energy price spike is hurting its lower-income consumers while also increasing its own costs, and the war in Iran continues to drag on. As long as that's the case, it may be an overhang for the stock.

Likewise, the stock still isn't, strictly speaking, in bargain territory, as noted above. With so much rapid growth behind it, the next five years won't look like the last. That leads Bill Gunderson, CEO and chief investment officer of Gunderson Capital Management, to predict that Walmart will lag behind "the S&P 500 by a fairly wide margin over the next 12 months."

That said, as other retailers' results showed, American shoppers are still more resilient than many investors expected, even with the albatross of inflation. And Gunderson doesn't think the stock will be totally dead money, as he has a five-year price target of $152.05. "Walmart is still the best-in-class bricks-and-mortar retailer in the market today," he says.

Don't forget that Walmart tends to perform well in economic downturns. The stock gained 18% in 2008 while the S&P 500 index was down some 38%. Walmart also held its own during the Covid selloff, gaining 2% in February and March 2020 while broader indexes plunged. Should the economy eventually slow, investors will probably pile in.

Walmart stock was left for dead in the mid-2010s when popular wisdom held that Amazon.com would take over the world. Instead, Walmart reinvented itself to thrive in the e-commerce age. It might be down, but it's not out.

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