Walmart released its quarterly report on May 17. According to the trading session results, a collapse in stock quotes by more than 11% had to be ascertained. Such dramatic drop is very uncharacteristic for Walmart, holding the status of a defensive asset. What is the reason for investors’ resentment?
In the context of inflation, setting a record for the last 40 years, Walmart is expected to pass increasing costs on the buyers’ shoulders. But costs seem to be rising much faster than the company's store sales. With revenue growth of just 2.4%, earnings per share showed a decline of 23% to $1.3, which was substantially worse than the $1.48 forecast.
The dramatic increase in fuel and food costs, so far, doesn’t show a significant slowdown. So, the corporation has to worsen forecasts – earlier, annual earnings per share should have increased by 5-6%, but now it is expected to decline by 1%. Raising the economic rates level also can’t raise optimism, as it leads to an additional increase in debt servicing costs.
All these facts cast doubt on the defensive status of Walmart stock, considering the relatively good performance of other companies with a similar reputation, such as Coca-Cola, Johnson & Johnson, Procter & Gamble, etc. The loss of the "Safe Harbor" status may lead to a greater impact on the shares’ dynamics of the general market background, and it has been far from positive in recent months.
A month ago, the price updated historical highs. But yesterday's dramatic failure immediately sent stocks back to the year-ago levels. However, the RSI is already approaching the oversold zone, and the downward movement may be interrupted for a while. Wait for the buyers’ attempt to stop the collapse, and only then carry out the sale.
The March 2021 minimum at the point of 126.24 can be identified as a downside target.
The following options of trading strategy can be applied:
1) Sell Walmart at the current price. Take profit - 126.3. Stop loss - 134.
2) Sell Walmart during rebound upwards to 137. Take profit - 126.3. Stop loss - 141.5.
In addition, traders, at their discretion, instead of a fixed Stop loss, may use Trailing stop, when the price moves down.