As the reports continue to come in during this earnings season, some of them speak louder than others. This is certainly the case with Walmart’s call scheduled for Tuesday.
With the Fed laying off on contracting economic growth, and optimism about getting the U.S. and China trade dispute resolved, investors remain focused on the results of all the earnings reports we see released this time of year.
Whatever economic struggles that we’re having is going to be reflected in the overall results from these quarterly reports, and when looked at together, we can get a pretty good idea of what things look like on the business front, and also get an opportunity for companies to share with us visions of where they see their businesses heading over the near term.
We are no doubt being dragged down somewhat by the outcome of these earning reports, which tell the story of a slowdown in earnings growth, which investors generally perceive as being on the bearish side.
It’s not that simple though, as the market prices in future value which then becomes modified as new information becomes available to further clarify things. If the expectations are that we will likely see this earnings showdown continue, and it ends up continuing, that’s really not much change here.
It is only when things appear worse than we thought that you see value taken out of stocks, where people become willing to sell their shares at a lower price. If things proceed according to what we believe, this is not really going to alarm anyone, and when companies exceed expectations, this causes people to be willing to pay more for stocks.
This earnings slowdown, slowdown of growth that is, certainly lowers the ceiling of stocks and stock markets, and this is indeed quite influential, but more so in a limiting way than something that would cause us to believe things are headed south.
There’s also more to a stock’s outlook than last quarter or this quarter, as its longer-term prospects also have their say. It’s hard to imagine Warren Buffett deciding to turn away from a company’s long-term growth prospects to instead focus on what price movement a stock may have over the next few months.
People do tend to invest more when markets are rising though, people who do not even time their positions at all, but get more enthusiastic and find more money to invest when the market outlook is positive.
There’s still a lot of turnover in the stock market based upon these shorter-term outlooks and movements, and this stuff can move markets a lot, so this time frame is an important one to pay attention to, especially if we are considering adding or taking away from our current positions.
Walmart Steps Up to the Plate Tuesday
We’ve already seen many of the big players in the U.S. stock markets step up to the podium, but there are still some significant returns yet to come. This week’s earnings agenda is headed up by a very big one, Walmart.
Walmart’s earnings report is a particularly interesting one given the dip in retail sales that we just found out about, making December the worst month we’ve seen since all the way back in 2009. This report was so shocking that some economists simply refuse to believe it.
Given Walmart’s leadership position in retail, they may fare better than the industry as a whole, but it’s hard to imagine them not being touched by such a disappointing finish to 2018. With that said though, the drop was only by 1.2%, which is not an amount that could dramatically alter a company’s overall performance, especially a company like Walmart.
Observers are particularly curious about seeing how Walmart’s business interests in India are doing. In particular, we are looking to see how Indian e-commerce company Flipkart, which Walmart bought a majority stake in last May for $16 billion, is handling the stricter Indian e-commerce regulations.
Analysts are concerned that these evolving regulations will put the reigns on Flipkart’s business somewhat, and perhaps even to a degree for real concern. Walmart themselves admits that this deal is bringing them down, and it’s the how much that we need to discover.
Walmart Still Has Some Exciting Prospects
On a brighter note for the company, Walmart’s grocery business continues to grow nicely, and enough that it is expected that grocery sales will have a noticeable effect on the bottom line and their ability to meet expectations.
A big part of the future of Walmart is expanding their online business. Amazon has shown us how big this market is and how much money can be made from it. Walmart has a long way to go to hang with them in the online world, but Walmart is said to have the will and the means to tap into this market a lot more.
E-commerce continues to grow, and as buying things online gains a greater foothold in the overall retail market, this slack will need to be taken up by someone. This realm is certainly big enough for more than one elephant, just as the physical retail world is. This will become even more the case over the next few years.
As for what is expected during Tuesday’s earnings call, analysts are expecting revenue to be higher but earnings to be flat compared with this quarter last year. In the retail business, the fourth quarter is the big one and you really can’t compare it to any other quarter and expect it to be all that meaningful.
It’s certainly possible that Walmart may pleasantly surprise us, but there’s a real chance we could see the other sort of surprise, if the retail sales report is representative and accurate. We probably won’t be too far off either way though.