WMT is a strong business with AI resistance, but its current valuation multiple is too high relative to its earnings growth rate.

And the first stock is Walmart. This is a very interesting case study because historically speaking, Walmart's done very well over the last decade. It's outperformed the S&P 500 by a pretty large margin.

However, in the last year now has underperformed up about 5% and year-to date actually down by 2% while the S&P 500 is up double digits. Now, it's climbed just a little bit over the last couple of days, but it is on the lower end of its 52- week range.

We understand that Walmart is one of those companies that investors are flocking to right now because they consider it more AI resistant. On top of this, historically, Walmart has continued to grow earnings over the last few years.

Take a look at the stock screener. The data will load in thanks to ticker data and you can see revenue per share has continued to climb higher while earnings per share in 2025 was actually a record significantly higher than the levels they were at in 2020 and 2023.

So, why have we seen the stock decline by such a large amount year to date, at least relative to the S&P 500? Well, it's a great question. In the last 6 months, the stock is down 13.4%.

Why is this the case? Well, it's not too complicated. In reality, the valuation multiple has declined substantially, particularly in the last few years. Historically, Walmart was trading in that 20 to 25 PE multiple range.

Once AI really started becoming a threat, once investors really started fearing AI, they began willing to pay a premium for Walmart, they reviewed it as somewhat AI proof. But it got all the way up to a 45p multiple at one point closer to a 46 47P multiple.

So now we've seen that PE multiple pull back significantly just in the last few months.

For example, take a look at the past decade from 2016 to the beginning of 2026 for Walmart. Yes, Walmart continued to grow earnings per share at a healthy rate. They grew dividends per share at a healthy rate, but the vast majority of their gains came from valuation expansion.

Now, that can be justified if they're projected to grow earnings at a much higher rate in the future or if they're widening their moat, which maybe to some degree they have relative to the market.

But anytime you have the vast majority of your gains coming from valuation multiple expansion, it's a little bit frightening.

So, Walmart is still a great business. Its growing earnings and revenue per share, and return on invested capital was actually one of the highest levels they've had in 2025 compared to prior years.

The business was just trading at a very expensive price. That's the simple reality. And so, let's just look at Walmart now from a dividend perspective. What you'll see is the yield is still quite low.

It's just roughly 1% and dividend growth is really only at around the 6% range over the last few years.

And what's interesting is when you look at projected earnings growth for Walmart, it's decent. It's roughly that 10 11 to 12% range. But a stock with a 1% yield growing earnings at about 10% a lot of the times I probably would not be willing to pay a near 50p multiple for that stock.

And I think that's what a lot of the market is realizing as well right now. So, that's the reason for the sell-off. It's pretty self-evident.

Is it interesting at current prices? Well, if we jump over to our sensitivity analysis and look at Walmart, if they're able to grow EPS at a compounded annual growth rate of roughly 10.5% like analysts do seem to be projecting, and their future PE multiple, maybe it declines even more closer to the historic average.

Maybe it drops all the way down on a trailing 12-month basis to closer to 35. You can see forward-looking returns still look suppressed. In fact, their 12month PE multiple would have to be closer to 40 for 2031 compounded returns to be close to market averages.

So, here's what I'm saying. Walmart is a great business. I do also think it's one of the more AI proof businesses out there, but even at current prices, you're still having to pay quite an expensive multiple to add this stock to your portfolio.

I don't think the level of earnings growth justifies the current valuation multiple.