Walmart ( WMT) continues to perform, but I was less impressed with this quarter than some previous ones. I'm looking at the weekly price action of the stock, the earnings report, and the post-earnings reactions and believe we're headed to $115 before $125. I dare to say this is almost a put play or a short with a stop on a close above $125.
Earnings of $1.16 per share beat the $1.09 estimate easily, with revenue that finished in line with expectations. Excluding currency impact, it nudged slightly above, and without exclusions, it came in slightly below. We're talking about a $500 million swing either way on $128 billion dollars. It's nothing to ruffle your feathers over, as we're talking about a minuscule miss or beat, depending on your view of currency impacts.
U.S. comp sales rose a very respectable 3.2%, but I found the 1.3% growth in the international markets disappointing. Again, currency had an impact, but operating income dragged overall results. Walmart continues to lose money internationally. And it is still losing money on the e-commerce side of the business. I love the 41% growth as more consumers switch to online for their grocery needs; but, the low margins of food combined with the roll out of higher cost of delivery will need more growth to achieve profitability. The online grocery biz sits in the low single digits percentage-wise for the U.S. consumer, so there is a ton of growth available. Expect those numbers to triple or quadruple over the next decade.
With the 30% rise in shares year-to-date, I think we've reached the point where the stock is a bit ahead of itself. Despite the big e-commerce growth, I don't know that Walmart trading with a price-to-earnings, or P/E, approaching the mid-20s with sub 3% overall growth and international numbers taking longer to come online than I'd like to see will encourage buyers.
The Full Stochastics indicator is seeing a bearish crossover here. Historically, this has paused advances and sent us to test support. It's not a big drop to the $115 area, but outside of earnings, Walmart isn't typically a gapper (stock that gaps up or down large amounts from day to day). Catching $5 in either direction is a respectable trade, so even though the overall trend is bullish, there are enough hints here to consider a downside trade.
The movement post-earnings hasn't been one of extreme volatility for the three weeks following. Unfortunately, there's no discernible historic pattern of significance to trade in terms of trend, fade, and volatility, so I'd lean more on the indicators and price channel mentioned above.
Longer-term, this one is still a winner, but I'd look for entry around $115 and even consider playing some downside here with a stop on a close above $125.
