Will Wal-Mart Continue Its Dominance?

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. The company’s slogan, “Everyday Low Prices,” is also its pricing philosophy, under which it prices items at a low 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. 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 broke above a long-term value range and has been trending higher since then. The stock is now trading near all-time high prices and looks to continue this bullish trend. 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 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.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Wal-Mart Options

18.07%

30%

28%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July 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 low 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

11.14%

12.50%

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 figures over the last four quarters. From these figures, the markets have generally been pleased with Wal-Mart’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

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

Wal-Mart

Costco

Target

Sears

Sector

Year-to-Date Return

14.30%

11.14%

18.40%

28.14%

20.74%

Wal-Mart has been an average performer, year-to-date.

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Conclusion

Wal-Mart provides a wide range of discount products and services to consumers and businesses across the globe. The stock broke above a long-term price range and has trended higher since then. Earnings and revenue figures have displayed steady growth which has kept investors in the stock satisfied. Relative to its peers and sector, Wal-Mart has been an average year-to-date performer. Look for Wal-Mart to OUTPERFORM.

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