Walmart’s Poor Price Action Amid Strong Results Suggests Lower Prices Lie Ahead

Photo credit: Mike Mozart, via Wikimedia Commons

Walmart Inc.’s (WMT) stock has outperformed the broader S&P 500, rising by almost 10% compared to 5.2% in 2020. Still, Walmart’s stock has struggled and failed to advance despite reporting better than expected fiscal second-quarter 2021 results. The weak price action may even suggest that the shares are heading lower from here, not higher.

The company reported revenue of $137.7 billion, which beat estimates by $3.93 billion. Additionally, earnings were better than expected at $1.56 per share, $0.31 better than expected on August 18. Still, the stock has fallen by 4% since reporting results, and as noted on August 17, the potential for the stock to fall back to $120 remains the base case.

Failing To Advance

Following the results, the stock pushed higher to the upper end of the trading channel and failed to rise beyond it. It resulted in the shares falling below support at $133.50, creating the potential for the stock to fall back to the lower end of the channel around a price of $120. The equity’s inability to advance following the better than expected results came with heavy trading volume. It would suggest the number of sellers in the equity far outweighs the buyers.

Slowing Sales

The big reason why the stock may have struggled is due to the commentary from its conference call. On the call, the company noted that as stimulus funds started to taper off at the end of the second quarter, the company saw comparable sales normalize. Walmart had reported robust same-store comparable sales, which increased by 9.3% versus estimates for 5.4%. However, the company noted comparable sales were normalizing and had fallen to 4% in July.

The slowing in the business is likely the reason why there is an increasing amount of put volume for the September 18 $125 strike price in recent days, as well as the $120 puts for the same expiration date.

Despite the negative commentary and price action, analysts are growing more optimistic about the business. Over the past seven days, there have been 28 analysts that have increased their earnings estimates for this year. Those analysts now see the company earning $5.22 per share for this year and $5.54 for next year. That is up from $5.01 per share, and $5.54, respectively, seven days ago.

Still, the stock is not cheap trading at nearly 26 times its forward earnings estimates and a very high PEG ratio of over 4. It means that for the stock to continue to rise, and for shares to become reasonably valued, the company will need to deliver better than expected results in future quarters. That may be a tough task, especially if the business is starting to normalize after a robust period of growth.

Investors. Take. Note.

Disclosure: None.

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Carl Schwartz 2 years ago Member's comment

Personally, I'm excited about Walmart's new pilot program testing out drone Delivery. Amazon may have had the idea first, but Walmart seems to have beaten them to the punch, as per Marketwatch:

Harry Goldstein 2 years ago Member's comment

There are few stocks that can do well during a pandemic. I think Walmart is one of them as people look to buy essentials and save money at the same time. If Walmart Plus can offer same day delivery without logistical problems, they'll do even better.

Duke Peters 2 years ago Member's comment

I don't think the author dug very deep into his research. Between Tik Tok and Walmart Plus, Walmart is looking very attractive at the moment IMO.

Harry Sinclair 2 years ago Member's comment

If Walmart can successfully take on Amazon, I'll eat my hate. Amazon excels at everything they do. Walmart's logistics are just a mess and it's technology is abysmal.

Samantha Carter 2 years ago Member's comment

Agreed, I remember I once placed an order for in-store pick up at Best Buy and Walmart the same day. I had my item in hand at Best Buy in under 4 minutes. With Walmart, it took an hour before they could even find someone who knew how to process my in store pickup. They then spent another 30 minutes manually waling to each package and reading the name on the label. They said the packages aren't computerized nor organized in any way. That was the first and last time I did an in store pick up with Amazon. Walmart can't do anything right.

Duke Peters 2 years ago Member's comment

That may be true, the point is the author hadn't even known about these developments, so I wouldn't put much stock in this article.

Andrew Armstrong 2 years ago Member's comment

What about the Tik Tok deal? You failed to mention that at all.

Barry Glassman 2 years ago Member's comment

Which deal is that?

Andrew Armstrong 2 years ago Member's comment
Old Time Investor 2 years ago Member's comment

Yes, and don't forget that Walmart Plus will be launching soon to go ahead to head against Amazon Prime. A cheaper annual membership for faster same day delivery. That will drive the price up even more. $WMT $AMZN

Jason Green 2 years ago Member's comment

Soon? Hasn't the launch for WalMart Plus been delayed like 4 times? At last time I checked, there was still no hard date set.

Joe Black 2 years ago Member's comment

Please! Walmart never does anything well. Remember when the company acquired Jet for $3.3 billion? That was something to put the company on par with Amazon and it did nothing. Walmart belongs in the trash heap of history. The only reason they still exist is because they below it's suppliers into rock bottom prices and pay their employees almost nothing, so they have rely on welfare. There is no comparison.