Expectations continue to rise

Generally speaking, investors tend to buy or sell a companies’ stock based on their expectations of future performance. That being the case, it is interesting to note the run up in Target’s share price this year, and the corresponding decline in shares of Walmart. As of last week the companies were trading within a few cents of each other at slightly less than $50. That’s great news for Target, which began the year at $34.64 and is up more than 40% on the year. Less so for Walmart, which has declined about 11% after beginning the year a few pennies shy of $56.

Ironically, Walmart is beating Target on virtually every measure of financial performance this year. Even so, the upward movement in Target’s shares is reflective of a belief that the company is well positioned for a rebound in profitability, as the recession ends and GDP growth resumes in 2010. Conversely, Walmart was a beneficiary of the downturn in the economy, and it would appear investors are not buying into the company’s assertion that it will be able to retain those customers attracted to its stores during the recession when the economy improves.