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Investopedia Advisor submits: Wal-Mart (WMT) is going through some tough times, and unfortunately, I don’t see the stock turning around any time soon.

For the period ended July 31, the company earned 72 cents per share, backing out one-time charges. That’s about a 6% improvement from the 68 cents per share the company earned in the same period last year. Same-store-sales for the period rose just 1.5%. That’s sharply lower then the 3.8% the company witnessed in the first quarter, and lower then the 3.6% the company reported last year. Total sales were up about 11%, while US sales were up just 6.9% over last year. Put another way, sales, particularly U.S. sales (its bread and butter), are slowing.

And this, combined with management’s efforts to remodel existing stores, and conduct marketing campaigns to target bigger spenders could have a big time negative effect on future results.

Next, potential investors must consider fuel prices. Higher fuel prices hurt everyone, but especially Wal-Mart, because all of its wares are trucked into their various locations. Although the company can eat a portion of those expenses, it will be forced to pass along a big chunk of the costs to consumers. Not a good thing given that most Wal-Mart consumers are very price sensitive.

As a result of these woes, Wal-Mart’s management team indicated in conjunction with the second quarter press release that it expects the company to earn between 59 and 63 cents per share in the third quarter. The average Wall Street estimate for the period had previously been 63 cents per share. Again, not a good sign for a company that has consistently delivered on the earnings front for essentially the past decade.

Next, I suggest that you look at the most recent insider transactions. The fact is that execs are selling the stock. My question is if insiders aren’t buying the shares near the annual lows, why should you? I need to look back to December 2005 before I see any open market purchases by senior execs. That tells me that the stock probably has more downside risk than upside potential for the time being.

I am also worried by all of the bad press the company is getting with regards to its labor practices. A number of would-be presidential candidates are harping on the company’s pay structure, and that they aren’t a union shop. Now, most of this is just grand standing , and I don’t see Wal-Mart going union any time soon. But all of this talk is giving the company’s PR staff some real fits, and may take its toll on the share price, and consumer foot traffic.

That leads me to my next point. I believe in the longer term prospects for the company. I believe in them more then I do any other discounter, including Target (TGT), and Costco (COST). After all, they are the 800-pound gorilla in the industry. They have amazing purchasing power, a solid store layout, and a reputation for producing consistent growth. I only question the timing of a purchase at this point. Remember Wal-Mart isn’t really doing anything wrong.

It is being dragged down by macroeconomic conditions, which are essentially beyond its control. My only real worry is how bad things will get before the company is able to get back on track. Remember, it can’t cut prices dramatically, like some of the higher end retailers to draw foot traffic. They are already the low price provider! So this is the real risk, and what will continue to put a near term damper on the story.

My gut tells me that the company might be forced to ratchet down earnings even further over the next quarter or two. I say this because the cost of virtually everything the company sells has increased markedly over the past year. And this will ultimately trickle down to the company’s core, price sensitive customer.

I also suspect that there could be some tax loss selling near year-end, as funds and individuals dump the stock in pursuit of greener pastures. But hopefully this, combined with some sort of forward looking comments by management that things are going to improve or at least stabilize may provide a solid buying opportunity. But again, I’d wait for clear evidence before pulling the trigger. Patience is the key with this one.

WMT 1-year chart:

By Glenn Curtis, Contributor - Investopedia Advisor

At the time of release Glenn Curtis did not own any shares in any of the companies mentioned in this article.

Source: Wal-Mart Facing Tough Times