Question

(Chapter 12) Suppose you had access to satellite footage of the exterior of every Walmart store for the last five years. How could you use this footage to construct a leading indicator that predicts whether to buy or sell Walmart stock? 2.

Answer 1

A leading indicator that can be constructed using the satellite footage of the exterior of every Walmart store for the last five years will be the growth rate of same store number of footfalls. By same store number of footfalls I mean the growth rate of footfalls for a particular store on a year-on-year basis. This metric will serve as an economic factor that changes before the impact of macro-economic changes kicks in.

I can easily observe the number of people entering a particular store of Walmart and the changes on an annual basis. It should be noted that same store sales growth is a very important metric for the retail industry and using my growth rate figure of same store number of footfalls I can easily determine the possible traction in Walmart’s stock. If the same store footfalls of Walmart are increasing above the industry average same store sales growth for the retail industry then Walmart’s stock will be an obvious buy choice. In the opposite scenario where the same store footfalls of Walmart are declining or is significantly less than the industry average same store sales growth for the retail industry then Walmart’s stock will witness bearish outlook for future and hence the stock will be sold.