Going by the performance of discount retailers, Wall Street sees more potential in Walmart Inc. (NYSE: WMT) than Dollar Tree Inc. (NASDAQ: DLTR), Dollar General Corp. (NYSE: DG) or Big Lots Inc. (NYSE: BIG)

Walmart has been pulling back in an orderly fashion recently after rallying to an all-time high of $165.85 on September 13. The stock is down 2.02% in the past week, with downside volume coming in below average. 

That lower-than-normal turnover is an indication that investors were simply taking some profits after a big rally, which is not unusual. Walmart stock has been a solid price performer lately, advancing 5.20% in the past three months.

In addition to investors paring back their position in Walmart, the S&P 500 has been declining. The iShares Core S&P 500 ETF (NYSEARCA: IVV) is down 1.43% in the past month and down 0.43% in the past three months. 

With a market capitalization of $436.98 billion, Walmart is the 26th most heavily weighted stock in the S&P 500, so unless it issues some news that reflects on the broad economy, which happens with some frequency, Walmart alone isn’t enough to move the index one way or another.  

Walmart Bagging More Grocery Sales

So let’s look at how Walmart compares to other discount retailers. 

In its most recent quarterly report, Walmart said grocery and health and wellness sales grew, while general merchandise performed better than expected. The company also cited double-digit revenue growth on its e-commerce platform, and on its Walmart Connect advertising platform. 

Total sales and earnings declined sequentially, while showing single-digit year-over-year increases.

Analysts expect Walmart’s earnings to grow by 3% this year and another 10% next year. 

Customers Back to Pre-Pandemic Shopping Habits

Meanwhile, Dollar Tree earnings declined by 43% in its most recent quarter, although revenue grew 8%. In a recent conference call with investors, CEO Rick Dreiling said customers’ shopping habits are returning to pre-pandemic levels, with less spending on discretionary categories. 

Investors have chopped down Dollar Tree’s stock, which dropped 25.41% so far this year. 

Earnings declined in the past two quarters, after decelerating in the previous four quarters. The post-pandemic trajectory has been lower, after a bounceback in 2021. 

In contrast, Walmart’s earnings have held steady in recent years. 

Take a look at rival Dollar General’s earnings, focusing on the year-over-year changes. Growth declined in the past two quarters, and the company missed analysts’ views by a wide margin. The company said same-store sales declined as in-store foot traffic fell. 

Dollar General stock is down 55.61% year-to-date.

Big Lots' Customers Pinching Pennies

Big Lots has suffered, as well, with the company saying its lower-income customers are increasingly cash-strapped and pinching pennies. In addition, there was a company-specific reason for lower sales: Big Lots’ furniture sales fell as its largest supplier closed unexpectedly. 

The stock's shares have declined 64.42% this year, the largest drawdown among the discount retailers. 

Big Lots analyst ratings show a consensus of “reduce,” a rating you don’t see too often. 

The stock is on a downward trajectory that shows no signs of abating, meaning it’s not a good idea to try and snap up a bargain here. 

Middle-Income and Affluent Customers Also Bargain Shopping

Much of the divergence between the performance of Walmart, and fellow top-performing discounters like TJX Companies Inc. (NYSE: TJX), and stores like Dollar Tree, Dollar General and Big Lots is due to company-specific factors. 

Walmart and TJX attract a wider range of customers across the income spectrum, meaning they aren’t so affected by lower-income customers who are doing more belt-tightening.

In fact, those stores are benefiting from middle-income and even more affluent consumers who have reined in spending, but haven’t stopped all discretionary purchases.

This year, higher-income shoppers have increasingly been turning to Walmart for groceries and household items, which has benefited the company. Walmart’s emphasis on groceries has benefited the company as more people eat meals at home versus at restaurants. 

Walmart’s analyst ratings show a “moderate buy” view of the stock, with a price target of $177.17, an upside of 9.13%. Walmart stock pulled back 1.39% the week ended September 22, getting support at its 21-day moving average, 1.4% above its 50-day line.