Walmart is making a mockery of the retail apocalypse — and traders are betting it’ll keep soaring

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Reuters/Jeff Mitchell

  • Walmart crushed its most recent earnings report, beating Wall Street profit and sales estimates while also raising full-year guidance.
  • The company also grew e-commerce gross merchandise volume by 54%, suggesting that it’s holding off Amazon.
  • Traders made adjustments to get more bullish heading into earnings, and they are positioned for more strength ahead for Walmart’s stock.

There’s no denying that the retail apocalypse is sweeping America, leaving thousands of brick-and-mortar store closings in its wake.

Apparently someone forgot to tell Walmart.

The biggest brick-and-mortar store of all is arguably doing better than ever, fresh off a blockbuster earnings report on Thursday that saw the company smash Wall Street estimates and post its best sales growth in more than eight years. The report sent the company’s stock surging 10%, demolishing its previous record high.

But nothing in Walmart’s quarterly report piqued investor interest like the company’s decision to raise its full-year earnings guidance. In a market where money managers are increasingly interested in what’s next for a company, rather than what’s already happened, it’s the ultimate driver of positive sentiment.

And the future certainly does look bright for Walmart, even in a retail landscape constantly under pressure from the online retail titan Amazon.

Walmart’s e-commerce segment grew gross merchandise volume by 54% in the third quarter, suggesting that it’s taking the fight to Amazon. Those figures now include Jet.com, the online retailer that Walmart acquired last year. Walmart has now expanded US revenue for 13 straight quarters.

While investors certainly took notice of Walmart’s stellar performance immediately after the earnings report, their confidence in the company had been building for weeks. This can be seen in a measure called short interest, which tracks bets that a stock will fall. The number of shares being held short fell by roughly 9 million, or 18%, in the month leading up to the quarterly release, according to data compiled by the financial-analytics firm S3 Partners.

That implies that traders weren’t particularly concerned with positioning against a potential drop in Walmart’s stock – a wise outlook in hindsight.

11 17 17 walmart short interest COTD

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Business Insider/Andy Kiersz, data from S3 Partners

Walmart investors are looking similarly confident going forward. They’re paying the lowest premium in two years to protect against a 10% decline in Walmart’s stock over the next six months, relative to bets on a 10% increase, according to data compiled by Bloomberg.

Still, it would be unwise for both Walmart traders and the company to get too comfortable with current conditions. Amazon has shown repeatedly that it’s capable of creating or erasing billions of dollars of market value with a single action. And while Walmart looks unscathed right now, there’s no telling what kind of tricks Amazon has up its sleeve.

But for the time being, Walmart and its shareholders can find comfort in the fact that they’ve avoided the retail apocalypse.

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Markets Insider