Costco Stocks Slip Despite Beating Revenues and Revenues

Posted on

InvestorPlace – Stock Market News, Stock Advice & Trading Tips, Costco Grosir Wholesale Company (NASDAQ:COST) reported second-quarter fiscal earnings on March 3. Despite beating Wall Street forecasts for earnings and earnings, COST’s stock fell sharply in pre-trade. On Friday, it remained down about 1% from Thursday’s close.

 

Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.

Source: ilzesgimene / Shutterstock.com

There are several reasons why the market is attacking COST stock despite a good quarter. I will investigate them soon. Some people may see this as a bad sign.

If COST is unable to return to growth mode after quarterly earnings that topped expectations, does that mean we are reaching the end of a decade-long growth cycle that has seen the stock rise in value by more than 525%? I don’t think so. From my point of view, the short term weakness in COST stocks is nothing more than an overreaction of the market, and a great time to pick up the stock at a discount.

Costco Second Quarter Beats Estimates

On March 3, Costco reported its Fiscal 2 Quarter earnings. Total revenue for the quarter was $51.94 billion, up 16% year-on-year. Earnings per share (EPS) was $2.92, an increase of 36% YoY. Both figures beat Wall Street estimates of $51.53 billion and $2.76, respectively.

Despite earnings and earnings, COST stock is sinking in after-hours trading. It improved on Friday, but still remains beyond Thursday’s close of 1%.

What is going on? The company spiked February’s figures and there was a slight slowdown in comparable sales growth during the month. The effect is more visible in online sales (more on that in a moment), but the numbers raise concerns that inflation and interest rates may be starting to bite, with consumers tightening their spending.

I actually wrote about this issue a few weeks ago. If you read that post, you’ll find the case for Costco’s unique position as a bulk goods retailer that really puts it in a position to potentially profit of these economic factors.

Costco’s E-Commerce Profits Slowed Down Significantly

One number that might catch the market’s attention is Costco’s e-commerce sales growth. Online sales growth during the quarter was an adjusted 12.6%. That would be a pretty solid performance — it tops Costco’s overall revenue growth during the quarter. However, a year ago, the company’s adjusted Q2 e-commerce sales growth reached 74.8%.

It was a sharp decline in growth.

Online sales soared everywhere during the worst of the pandemic. But let’s be realistic, they will always drop to more reasonable levels when the country reopens. Especially with Costco, people shop in person because they stockpile in bulk and are looking for deals for a limited time.

Neither of these activities translate well to online shopping. So it should come as no surprise that Costco’s online sales growth has slowed. This is not the time to panic.

The main thing is

COST stock may have dropped after the Q2 earnings report, but that doesn’t mean you should avoid it. It’s a stock that has performed strongly over the past decade, and a company that just beat earnings and earnings forecasts for the quarter.

That’s not enough to beat them. Add to that slowing e-commerce growth and concerns about economic factors, and COST is feeling the impact.

Nonetheless, it is an “A” rated stock on the Portfolio Assessorand which has held the consensus “overweight rating” of investment analysts for months.

In the weeks leading up to Costco’s Q2 earnings report, I wrote that the low price of COST’s stock would not last long. It’s up nearly 3% since then. If you are thinking about adding this proven long term growth player to your portfolio, the longer you wait, the more expensive it will be.

As of the date of publication, Louis Navellier has a long position at COST. Louis Navellier does not hold (either directly or indirectly) any other position in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article does not hold (either directly or indirectly) any position in the securities identified in this article.

Louis Navellier, billed as “one of the most important financial managers of our time”, has broken the silence at this shocking “tell all” video… uncover one of the most shocking events in our country’s history… and the one move every american needs to make today.

More From InvestorPlace

The post Costco Stock Slips Although Earnings and Revenue Beat appeared first on InvestorPlace.

[bg_collapse view=”link” color=”#4a4949″ icon=”arrow” expand_text=”Show More” collapse_text=”Show Less” ]
enterpreneur.com
medium.com
shofipy.com
[/bg_collapse]