Walmart Stock Seen Rising 9% Short Term

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Walmart Inc.'s (WMT) stock has had a horrible 2018, with shares down nearly 13% so far, while also over 20% off its highs. But all of that may be changing in the coming weeks, based on an analysis of the technical chart, with the potential for shares to gain about 9%. A turnaround would be an accomplishment for the bulls. 

It is not only the charts that suggest shares will rise, but options traders are also betting the stock will increase as well over the short term. However, the longer-term outlook may still be in question with earnings and revenue growth expected to remain tepid over the next couple of years. 

Bullish Chart

The technical chart suggests Walmart is poised to rise about 9% from its current price of around $86. The chart shows a technical pattern called a triple bottom, a bullish reversal pattern. Additionally, the stock is currently approaching a significant technical resistance level at $88.20, and if shares can rise above that resistance price, it would have room to climb all the way back to $93.50, increasing about 9%. (For more, see also: Walmart Stock Could Be Set Up for Major Rally.)

Additionally, the relative strength index has been steadily trending higher, even with shares trading sideways from April to mid-June, a bullish divergence. It would suggest that momentum is moving into the stock. Additionally, volume levels have been steadily rising, indicating buying interest is also increasing. 

Bullish Bets

Options traders have been active in the calls set to expire on July 20 at the $90 and $93 strike prices. The open interest for the $90 strike price has surged to over 24,000 open contracts. With the $90 calls trading at roughly $0.25 per contract, a buyer would need the price of the stock to rise to $90.25 to break even if held until expiration, an increase of about 5%. 

Not Sustainable

But any rise in the stock may only prove to be short term in nature, with the current earnings multiple trading at more than double the earnings growth rate. Analysts see earnings for fiscal 2019 rising by only 8.7% but are currently valued at nearly 18 times estimates of $4.81 per share, giving the stock a PEG ratio of about 2.1, making shares pricey. (For more, see also: Walmart Inks Deal With Postmates for Deliveries.)

WMT Annual EPS Estimates data by YCharts

The outlook doesn't get much better for the company going forward with earnings growth expected to slow in fiscal 2020 to 3.8%, on revenue growth of 3%. 

Walmart's stock may catch a break over the short term and see its shares rise, but it seems unlikely at this point for the gains to be sustainable.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.