WMT Is Overvalued and Overextended Heading Into Earnings; How I’m Protecting My Profits

Walmart (WMT) is on a tear heading into its 3QFY25 earnings report next Tuesday morning with shares up 60% YTD. Unfortunately, a consequence of that price appreciation is that the stock has become overvalued and overextended. WMT now trades for 35x the midpoint of the company’s FY25 EPS guidance. You read that correctly: 35x.

While that’s nothing compared to Costco (COST) at ~50x, it’s still significantly overvalued. With a position representing 11% of Top Gun’s long/short portfolios, that puts me in a tough spot. I continue to be bullish on the stock long term but I’m nervous about the short term, especially the reaction to next week’s earnings report.

But I don’t want to sell my entire position. My plan is as follows: First, sell 1/3 to 2/5 of the position on Monday. Second, sell WMT Nov22 $88 Calls for ~$1 apiece on the remaining position. WMT closed last week at $84.25. If the stock sells off in reaction to earnings, I’ll have that $1 cushion. If it closes next Friday above $88, I’m willing to take profits.