Walmart Pre-earnings Analysis
Chart done on daily timeframe. Walmart shares reached a new all time high this year thanks to buyers buying up the stock leading to its split, but shares have flat lined over the last two months. The company’s earnings this week may be the catalyst that finally breaks them above or below their current range. Walmart has surpassed profit estimates on three of the last four quarters with the outlier being a flat result. Walmart’s massive infrastructure and revenue has allowed it to compete with big players like Amazon in the online space at a time in which consumers are budgeting from every angle. Inflation’s impact on the way consumers spend their money has benefitted Walmart thanks to their “Save Money, Live Better” business model, and their stock’s move is a reflection of their success. However a price to earnings ratio of 32x makes the company much more expensive than competitors like Target, which is trading at a P/E of 18. Granted Walmart pulls in six times the revenue that Target does, but nonetheless, when it comes to valuations, markets eventually find a way to correct overvalued stocks.
Walmart’s profits this quarter are projected to fall from last quarter’s .60 per share to .52 per share. This means that even an earnings beat alone won’t be enough to drive the stock higher. Walmart needs to beat .52 and post something above .60 to really gain attention, or else they might be due for a downside move.
Option chain analysis:
Looking at Walmart’s option chain with this week’s expiration (May 17th), the current implied volatility is 53%, which translates to about a $2.63 move from the stock. The direction of that move will depend on the earnings outcome and call.