Does Wal-Mart Support All-Time Highs?

With shares of Wal-Mart (NYSE:WMT) trading around $78, is WMT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Wal-Mart operates retail stores in various formats around the world. Pricing items at a low price everyday is the company’s pricing philosophy. Wal-Mart operates in three business segments: Walmart U.S. segment, Walmart International, and Sam’s Club. Through its segments, Wal-Mart is able to provide the products demanded by consumers and businesses across the globe at very competitive prices.

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T = Technicals on the Stock Chart are Strong

Wal-Mart saw a monster run in the late 1990s that has led to over a decade of consolidation in the stock. Last year, the stock broke-out to all-time highs, pulled back a bit, and is now once again trading at all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Wal-Mart is trading above its rising and untangling key averages which signal neutral to bullish price action in the near-term.

WMT

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Wal-Mart options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Wal-Mart Options

17.59%

90%

86%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Wal-Mart’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Wal-Mart look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

11.33%

12.5%

8.26%

12.37%

Revenue Growth (Y-O-Y)

3.86%

3.36%

4.51%

8.47%

Earnings Reaction

1.51%

-3.63%

-3.08%

4.2%

Wal-Mart has seen increasing earnings and revenue over the last four quarters. From these figures, the street has expected, at time, a little more from Wal-Mart but is happy with the most recent earnings announcement.

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P = Average Relative Performance Versus Peers and Sector

How has Wal-Mart stock done relative to its peers, Costco (NASDAQ:COST), Target (NYSE:TGT), Dollar Tree (NASDAQ:DLTR), and sector?

Wal-Mart

Costco

Target

Dollar Tree

Sector

Year-to-Date Return

12.54%

4.68%

16.97%

15.24%

12.49%

Year-to-date, Wal-Mart has been an average performer in a very strong sector.

Conclusion

Wal-Mart is a global retail giant that provides a wide range of low-priced products and services to a multitude of consumers and businesses around the world. The stock has seen a recent lift, in fact, it is currently trading at all-time highs from the support of investors who are pleased with the increasing earnings and revenue figures. Also, Wal-Mart has been an average performer in a strong retail sector. Look for Wal-Mart stock to continue to OUTPERFORM.

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