Walmart’s Shares Poised for Sharper Declines Ahead
Walmart’s stock remains 15% below its 2018 peak levels.
(Note: This fundamental analysis is authored by a financial writer and portfolio manager.)
Walmart Inc. (WMT) shares continue to trade approximately 15% below their 2018 highs, despite a recent partial recovery. Current technical indicators forecast a potential pullback of around 7% in the upcoming weeks.
Analysts have been revising downward their earnings projections for Walmart’s fiscal third quarter of 2019, which could further pressure the stock price. Additionally, the shares appear overvalued, trading near a fiscal 2020 price-to-earnings ratio of 20, while earnings are expected to decline next year. (See also: Walmart Stock Starts Recovery After 26% Drop.)
Data source: YCharts
Technical Breakdown Signals Further Decline
Since August, Walmart’s stock has been on a downward trend. It currently rests at a key technical support level near $93.40. Should the price fall below this threshold, it may slide further to around $90, filling a previous technical gap. The most robust support level lies near $87, approximately 7% below the current price of $93.50.
The relative strength index (RSI) also points to bearish momentum. After rising in late March, the RSI trend is now deteriorating, indicating waning buying pressure. (See also: Walmart Stock Projected to Gain 10% in Short Term.)
Growth Prospects Dimming
Walmart’s growth outlook is weakening. Analyst revisions for third-quarter earnings growth have dropped to 3.2%, down from prior estimates of 5%. Revenue forecasts remain modest, projecting a mere 1.5% increase.
Valuation Remains Historically High
Data source: YCharts
More concerning is the expectation that Walmart’s earnings growth will turn negative in 2020, declining nearly 1% after an anticipated 9% increase in 2019. This subdued growth forecast does not align well with the stock’s current valuation. While technical signals suggest a near-term correction, this downturn could extend into a more prolonged and significant decline.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment advisor, and manages the firm’s actively managed, long-only Thematic Growth Portfolio. Kramer typically holds stocks for three to five years. For more information on Kramer’s background and portfolio holdings, click here. This content is for educational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investment strategies. All investments carry risk and are not guaranteed unless otherwise stated. Consult a qualified financial advisor and/or tax professional before implementing any strategies discussed. Upon request, the advisor will provide a list of all recommendations made in the past twelve months. Past performance is not indicative of future results.
If you have a news tip for Investopedia reporters, please email us at tips@investopedia.com.
Discover the latest news and current events in Company News as of 09-10-2018. The article titled " Walmart’s Shares Poised for Sharper Declines Ahead " provides you with the most relevant and reliable information in the Company News field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.
The information in " Walmart’s Shares Poised for Sharper Declines Ahead " helps you make better-informed decisions within the Company News category. Our news articles are continuously updated and adhere to journalistic standards.