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

Options traders are betting shares of Walmart Inc. (WMT) rebound by the middle of June by over 12%, to $98. Shares of Walmart down more than 20% from their highs at the end of January and off by nearly 12% for the year-to-date. The S&P 500 has fallen by about 8% and a little more than 1% for the same respective periods. 

The retail giant is expected to report results in the middle of May, and analysts are looking for the company to say that the fiscal first-quarter 2019 earnings grew by almost 12%, while revenue is expected to climb by roughly 2.5%. But all eyes will be on the company's e-commerce growth, after reporting weaker-than-expected growth in the fiscal fourth quarter. Strong growth in e-commerce was a driver of the stocks near 43% rise in 2017. (See: Why Walmart Will Never Be Amazon)

WMT Chart

WMT data by YCharts

A Rise to $98

The long straddle options strategy set for expiration on June 15 is implying that shares of Walmart rise or fall by nearly 8.5%, putting the stock in a trading range between $77.50 to $92.5, from the $85 strike price. But the number of calls heavily outweigh the puts at that strike price with nearly 7,000 open calls to only 2,900 open puts, suggesting traders are betting shares will rise. The number of open call contracts at the $97.5 strike price has almost doubled since March 22, rising to 11,000, and at roughly $0.60 per contract, it would imply a breakeven price of $98.10, a gain of 12.5% from the current stock price around $87.40. 

Slow Revenue Growth

Analysts are looking for revenue to grow by nearly 2.1% in fiscal 2019 to $506.29 billion, which is slower than growth in fiscal 2018 of nearly 3%. Walmart's revenue growth rate has been declining for years and investors had been looking to e-commerce as another area of potential growth, but that came crashing down in February. The company reported e-commerce revenue of $11.5 billion in 2018, just 2.3% of its total revenue. Meanwhile, online sales growth slowed to 23% in the fourth quarter, down from 50% in the prior quarter. 

WMT Revenue (Annual YoY Growth) Chart

WMT Revenue (Annual YoY Growth) data by YCharts

Expensive Shares

Shares don't come cheap either with the stock currently trading at nearly 16.7 times 2020 earnings estimates of $5.24. Earnings are expected to grow by 11.5% in 2019, and 6.3% in 2020. But the earnings growth in 2020, will have to mostly come on improving efficiencies because revenue is expected to climb by only 2.8%. 

Options traders are betting shares of Walmart bounce back after the company reports results in May, and a bounce is what it may only turn out to be if the results don't dazzle. 

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 holdingsInformation 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. 

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