In recent weeks, Walmart Inc. (NYSE: WMT) has experienced a decline in its stock price, dropping by 3.2%. However, despite the company's solid fundamental performance, questions are emerging as to whether the market will correct the share price considering its decent financials.

One important metric to assess a company's performance is its return on equity (ROE), which measures how effectively management utilizes the company's capital. In Walmart's case, the ROE is 19%, implying that for every $1 of shareholders' capital, the company generated $0.19 in profit.

ROE serves as a reliable indicator for potential earnings growth, as firms with higher ROE and profit retention usually exhibit higher growth rates. Comparatively, Walmart's ROE of 19% appears impressive when compared to the industry average of 15%.

However, despite the positive ROE, Walmart's five-year net income growth has been relatively low, averaging at only 4.5%. This is unexpected, as a high return on equity usually corresponds to a higher earnings growth rate. This discrepancy may be attributed to external factors such as low earnings retention or suboptimal capital allocation.

Upon further analysis, it is concerning to note that Walmart's net income growth falls below the industry average growth of 11% during the same period. Earnings growth is a crucial metric for stock valuation, providing insights into potential future performance.

Moreover, while Walmart retains 53% of its income, as indicated by its three-year median payout ratio of 47%, the company's earnings growth remains lackluster. This suggests that there could be other factors hindering its growth, potentially linked to prevailing business headwinds.

Furthermore, Walmart's consistent dividend payments over the past decade indicate a management focus on prioritizing dividends over business growth. Analysts' estimations indicate that the company's future payout ratio is expected to decrease to 31% over the next three years. However, despite this change, the ROE is predicted to remain relatively stable, further emphasizing the potential challenges affecting Walmart's growth trajectory.

In conclusion, while Walmart exhibits positive factors such as a high ROE and profit retention, the company is failing to deliver strong earnings growth. This raises concerns about potential external threats impeding its progress. Nevertheless, recent analyst forecasts suggest that Walmart's earnings will continue to expand. Investors are advised to refer to the latest analyst forecasts to gain deeper insights into the company's future earnings growth.

Please note that this article by Simply Wall St is based on historical data and analyst forecasts, utilizing an unbiased methodology. It is not intended as financial advice and does not consider individual objectives or financial situations. Simply Wall St aims to provide long-term focused analysis driven by fundamental data.