Will Summer Sales Boost Wal-Mart Stock?

With shares of Wal-Mart (NYSE:WMT) trading around $77, 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 operates retail stores, restaurants, discount stores, supermarkets, supercenters, 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 very affordable prices to consumers and companies worldwide.

Wal-Mart is an especially hot place for summer lovers to take advantage of, as it provides a one-stop shop for anything a beach bum’s heart desires. Customers know that they can get in and out of Wal-Mart quickly and find all of their summer gear at relatively low prices. One out of three customers give Wal-Mart’s summer products a perfect 10, and 33.8 percent assert that they would be extremely likely to recommend the store. Wal-Mart is undoubtedly looking at a very successful summer sales quarter. For consumers and businesses looking for one location that contains a wide variety of products and services, Wal-Mart is the spot and will continue to be well into the future.

T = Technicals on the Stock Chart are Strong

Wal-Mart stock has been surging higher over the last couple of years. The stock is now consolidating near all-time high prices so it may need some time before its next move. 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 slightly above its rising 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

16.21%

20%

18%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

4.59%

11.14%

12.50%

8.26%

Revenue Growth (Y-O-Y)

1.04%

3.86%

3.36%

4.51%

Earnings Reaction

-1.70%

1.51%

-3.63%

-3.08%

Wal-Mart has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from 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), Kohl’s (NYSE:KSS), and sector?

Wal-Mart

Target

Costco

Kohl’s

Sector

Year-to-Date Return

13.56%

22.78%

16.14%

24.97%

19.15%

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

Conclusion

Wal-Mart is a global retail bellwether and a one-stop shop for many products, including summer gear. The stock has been on powerful move higher over the last couple of years and is now digesting these gains. Over the last four quarters, earnings and revenue figures have been increasing, however, investors in the company have expected a little more. Relative to its peers and sector, Wal-Mart has been a weak year-to-date performer. Look for Wal-Mart to catch-up and OUTPERFORM.

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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