If you’re looking for a bargain, Walmart (NYSE:WMT) is looking like good value following earnings. But for WMT stock shoppers, maybe paying a little bit more for the merchandise will prove less costly later on. Let me explain.
It was a classic “sell the news”-style reaction from Wall Street this past week following Walmart’s overall very strong Q3 earnings report. Shares of WMT stock sank roughly 3.75% on Thursday and Friday despite delivering better-than-expected earnings, executing strongly in international markets, lifting full-year guidance and e-commerce sales surging year-over-year by 43%.
So, why the Rodney “no respect” Dangerfield performance in WMT stock? The retail giant did come in light with its overall sales of $124.9 billion versus forecasts of $125.6 billion. But factoring out foreign currency fluctuations, revenues actually beat views marginally on sales of $126.1 billion.
What else? Some may point to shares being up over 70% in three years or that Walmart’s below-market multiple of 20 is actually a bad thing, as it indicates skepticism on the part of WMT stock investors. I’m not sure those arguments hold water though.
For one, if we don’t cherry pick WMT stock’s corrective bottom from November 2015, investors who purchased shares in the beginning of 2015 are up less than 20% before dividends. While decent, it lags the S&P 500’s own non-dividend gain of roughly 35% by a wide margin.
Additionally, if investors missed the opportunity to buy in January 2015 at WMT’s all-time high, the chance to purchase shares in October 2017 and this past summer at the same price was there for the taking. And again, that kind of skepticism has been nowhere to be found, comparatively speaking, in the S&P 500 over the past few years.
Lastly, doubt on the part of Wall Street can be good news for investors willing to discount the narrative of the day. Bottom line, a period of relative weakness and lame excuses of why Walmart shouldn’t be purchased is the type of psychology that sets up itself up as a gift when others eventually wake up to value on the WMT stock chart.
WMT Stock Daily Chart
It may not happen tomorrow and I don’t think you have to come prepared to buy Walmart as if it’s Black Friday deal. Nevertheless, getting ready to shop and putting WMT stock on the radar today does makes sense. Technically, the earnings reaction in Walmart has served to pressure shares into a nice area of support within its uptrend after a cup-with-handle breakout was attempted, but ultimately quashed.
Shares are now testing WMT’s up-channel line and the 38% Fibonacci level with stochastics in oversold territory. Still, with various supports such as the 62% retracement level and 200-day simple moving average making for a somewhat wide technical zone all the way down to about $90.50 on the price chart, what’s a bull to do in WMT stock?
One strategy for WMT stock bulls is to buy shares on a candlestick confirmation a pivot lows is in place. For instance, with Friday’s doji establishing a high of $99.42, a reversal above this price could serve as an entry. For money management, given this purchase is tied to the upper boundary of a wide support zone successfully holding, I’d keep a stop immediately beneath the pivot low.
Alternatively, instead of buying shares of Walmart, purchasing the Jan $100/$105 call vertical is a way to leverage your return, reduce long premium options risk and maintain guaranteed protection. Currently the spread is priced for $1.35. However, paying a bit more — up to $1.75 as WMT stock signals a reversal — could prove a less costly strategy later on.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
