Is Wal-Mart Enticing After Recent Headlines?

With shares of Wal-Mart (NYSE:WMT) trading around $74, 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. The company aims to price items at the lowest price every day. Wal-Mart operates in three business segments: the Walmart U.S. segment, the Walmart international segment, and the Sam’s Club segment. It manages retail stores, restaurants, discount stores, supermarkets, super centers, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, neighborhood markets, and other small formats, as well as Walmart.com and SamsClub.com. Through its retail channels, Wal-Mart is able to provide a variety of products and services at affordable prices to consumers and companies worldwide.

Wal-Mart Stores has been trying, somewhat unsuccessfully, to bolster its online grocery delivery service for a while, but now it has enlisted recipe-focused startup Yumprint to help its cause. According to CNET, Wal-Mart announced Wednesday that it acquired Yumprint for an undisclosed sum, and the retailer plans to work with the startup’s co-founders, Chris Crittenden and Wes Dyer, to help strengthen its online service, Walmart To Go. The partnership is a new one for Wal-Mart because while the retail giant has expertise in a lot of things, it isn’t exactly known for its foodie prowess. Yumprint, on the other hand, specializes in publishing unique recipes, and it powers a public network of recipes for food blogs, according to CNET.

T = Technicals on the Stock Chart Are Weak

Wal-Mart stock has struggled to make significant progress over the last couple of years. The stock is currently trading sideways and may need time to stabilize. 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 below its rising key averages, which signal neutrals to bearish 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

15.03%

0%

0%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

As of Thursday, there is 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 small 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-18.56%

5.56%

5.93%

4.59%

Revenue Growth (Y-O-Y)

1.51%

1.66%

1.68%

1.04%

Earnings Reaction

-1.77%

0.22%

-2.6%

-1.7%

Wal-Mart has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Wal-Mart’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Wal-Mart stock done relative to its peers – Target (NYSE:TGT), Costco (NASDAQ:COST), and Kohl’s (NYSE:KSS) — and sector?

Wal-Mart

Target

Costco

Kohl’s

Sector

Year-to-Date Return

-5.43%

-4.95%

-2.23%

-1.83%

-2.61%

Wal-Mart has been a poor relative performer, year-to-date.

Conclusion

Wal-Mart is a retail company that provides a variety of products and services to consumers and companies worldwide. The company announced on Wednesday that it acquired Yumprint for an undisclosed sum. The stock has struggled to make significant progress over the last couple of quarters and is currently trading sideways. Over the last four quarters, earnings and revenues have been increasing. However, investors have had mixed feelings about Wal-Mart’s recent earnings announcements. Relative to its peers and sector, Wal-Mart has been a poor relative year-to-date performer. WAIT AND SEE what Wal-Mart does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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