is not the type of company to deliver much in the way of bad news and Thursday’s earnings report should be no different. However, investors looking to buy a float may want to expect a few.
Between its long history of strong earnings and strong monthly sales updates — the last of its kind among major retailers — Costco Wholesale’s ( COST ) quarterly earnings results don’t usually include many surprises. That’s likely to be true when the company reports its fiscal fourth quarter after hours today: We already learned earlier this month that comparable sales for the quarter were up by double digits when it posted its August update available.
But anything in the report that could cause turmoil in the stock should be welcomed by investors who have been held back by its premium valuation. Although Costco is down 13% this year, that’s a good thing
fall 21%, and its summer rebound chug also ahead of the broader market. But the shares, received are not always free. They still change hands at more than 34 times forward earnings, slightly ahead of their five-year average of 33.
So they wish bad news. For those who missed out on Costco’s multi-year streak, or are hesitant to add to their position at that price, they would have a chance to get the shares a little cheaper.
Obviously, it’s been a tough month for the market, and Costco is no exception. And a closer look at the selloff shows that the shares are at least cheaper compared to where they’ve stood over the past year. Costco trades at 0.9 times price to sales and 9.4 times price to book, on a prepaid basis, both below their median as of mid-September 2021. In fact, its one-year median earnings multiple has exceeded 38 times . By that measure, bargain hunters may already be interested.
Buying on the recent dip is undoubtedly a profitable bet. Costco has risen more than 205% over the past five years, almost four times higher than the S&P 500. But what are the people who fear that they have missed the boat? There are trends that should give them comfort.
Recent monthly same-store sales figures show Costco comps are still running more than 30% above where they were pre-pandemic, and both traffic and what shoppers spend when they visit are increasing. That suggests the market share gains the company made during the pandemic are likely to be sustainable.
Then there’s the fact that Costco’s “membership trends have never been stronger,” as Baird analyst Peter Benedict noted earlier this month—and it could gain additional revenue if a seemingly timely membership fee hike initiation, although that is not what is expected. yet to happen.
The reality is that while high inflation, concerns about the economy’s trajectory, and inventory woes are affecting retail as a whole, Costco has sidelined many of those concerns. Its August update showed continued resilience in non-food categories, suggesting it doesn’t have a glut of merchandise its shoppers are suddenly feeling too overwhelmed to buy, not unexpectedly given its relatively affluent customer base.
Its discounted gas may have helped traffic during the summer price spike, but in fact in all of 2022 through Labor Day, Costco’s traffic was above pre-pandemic levels in 31 of the 36 weeks of the year, according to data from Placer. ai.
The company’s low-price strategy is clearly resonating. Or as Jefferies analyst Corey Tarlowe previously told Barron’s, “value retailers like Costco are the best, because…the chickens’ pockets are picked, it wins value.”
Investors can too.
Write to Teresa Rivas at firstname.lastname@example.org