Shares of

Wal-Mart

(WMT) - Get Report

dipped Wednesday after an analyst downgraded the stock and warned that the company's strategy to crowd out its competitors may be weakening its sales.

Goldman Sachs analyst George Strachan lowered the world's largest retailer's rating to in line from outperform, saying in a research note that the company's sales growth may be suffering from "self-cannibalization," opening new stores too close together. The stock was recently down 24 cents, or 0.5%, to $52.26.

"If we are correct about self-cannibalization, it would help explain why general merchandise sales are especially weak at Wal-Mart," Strachan said. "Customers are already willing to travel for non-food items. Adding another supercenter several miles from an existing one helps Wal-Mart gain food market share... however, it probably drives less and less non-food share."

At Wal-Mart's analyst meeting in October, management said it was pursuing a market concentration strategy, opening new supercenters as close together as possible to maximize market share without damaging return on investment. While the company warned that this could act as a temporary drag on the top line, it said that saturating the market could ultimately win it 15% U.S. market share, up from the current 7% to 8%.

While Strachan said the strategy appears to be working for Wal-Mart's food segment, which has consistently posted 7% to 9% comparable-sales gains, he said it may have gone too far, slowing the company's overall sales growth.

Since last spring, Wal-Mart has seen a significant slowdown in same-store sales growth from its historical average. Meanwhile, it has failed to benefit from weakness at other competitors like

Toys R Us

(TOY)

and

Kmart

(KMRT)

, and other discounters like

Target

(TGT) - Get Report

and

Costco

(COST) - Get Report

have outperformed. Year to date, Wal-Mart has logged a 4.3% gain in comps, well below its historic average that is closer to 6% to 8%.

Conventional wisdom on Wall Street assumes that soaring oil prices have constrained the retailer by eating into the spending budgets of its low-income customers, who are particularly sensitive to higher gas and heating prices. For months, the stock has been seesawing with the movement in the price of crude futures trading on the Nymex.

But while management has consistently stuck to this script in explaining the situation, Strachan believes its market saturation strategy may be playing a larger role than the company is letting on.

"We have been surprised during several visits to Sunbelt growth markets this year by how much self-cannibalization Wal-Mart was willing to inflict on itself," he said. "The company plans to deliberately cannibalize its stores when they reach sales volumes of $100 million or more a year. This is a positive for sales growth, especially in the long-term, but it can result in comp-store sale declines at

these stores, which, after one or more bouts of self-cannibalization, may run at a rate of $80 million or less in sales per annum."

Still, Strachan recommends that investors keep some market-weighted exposure to Wal-Mart. Its shares have dropped over 9% since it topped out on a drop in oil prices in mid-November, making it one of the less expensive growth stocks in the market.

"Wal-Mart remains the greatest company in global retailing, with tremendous financial and operating flexibility to drive earnings growth," Strachan said. (Strachan doesn't have a position in Wal-Mart shares, but his firm does have an investment banking relationship with the company.) "Should any event trigger a flight to quality or liquidity, Wal-Mart would be an obvious beneficiary."