Positions: 9/8 $155 Puts & 8/18 $160 Puts
I believe Walmart will take a nice sized dip this week after earnings, for the following reasons.
First and foremast, I'd like to compare Walmart to their direct competitor Target. Walmart is valued at 431.35B while Targets market cap is 59B (Walmart 7x Target).
Walmart trades at significantly higher PE ratio of 38.85 while Target is 22.29.
Walmart is up a whopping 22% this year, while Target has fallen 25%
One of the primary reasons for purchasing Walmart stock according to investors, is that it is a “recession proof business”
I disagree with that point based on the fact that they already operate on absolutely razer-thin margins currently, and those will only decrease in a recessionary environment. Furthermore, shoplifting has been rapidly increasing YoY. Over 3 Billion dollars worth of products are stolen from Walmart every year. I can't imagine this will DECREASE in a recession, only INCREASE.
The smallest increases in shoplifting further decrease Walmarts already razer thin margin.
Comparing Walmart to Target may be a mute point as they are different businesses for sure. But I think this comparison shows the weakness of Walmart's hyper-thin margin business model and shows their overvaluation.
Second point: Ecommerce.
Walmarts Ecommerce division loses a significant amount of money. You will have likely notice this if you have ordered from their platform before. They will deliver same-day oftentimes, on already razer thin margin grocery items. This is a disaster for any profits. They have been trying to gain traction via 3rd party sellers on the platform, but this has not caught on at all and is mostly Chinese sellers with very high ship times.
Third point: Insider Selling
Insiders have been offloading incredible amounts of shares recently, with no purchases since March 15. They offloaded 3+ billion in shares the first half of 2023 and continued selling massive amounts of shares throughout the summer of 2023.
While these shares have been offloaded, the stock price has continued to rise, raising the fund & retail % ownership of the stock.
Walmart has earnings on Thursday (8/17) and Target has earnings on Wednesday (8/16). I believe both of these earnings calls will impact Walmart share price negatively, and Target positively.
Weather you buy Target stock or short Walmart is up to you. But I believe this week we see a nice sized correction, shortening the gap between the two companies market cap.
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