a pullback cannot be ruled out


The Costco (NASDAQ: COST) stock price continued soaring this week after the company boosted its guidance and hiked its membership prices. It is in its third month of gains and is sitting at its all-time high of $900, giving it a market cap of over $393 billion. 

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A future dividend aristocrat

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Costco Wholesale is one of the leading companies in the wholesale industry in the United States. In the past few years, its total sales and profits have continued surging, helped by its local and international demand.

Costco’s annual revenue has jumped from over $152.7 billion in 2019 to over $242 billion in 2023 and $253 billion in the last financial year. 

The company has also had a substantial increase in its annual profits, which have jumped from over $3.6 billion to $6.2 billion. 

Consequently, Costco has continued to reward its shareholders through dividends and share repurchases. It has boosted its dividends in the past 19 years and its low payout ratio means that it has room for more increases. As a result, it is likely a future dividend aristocrat; a company that has hiked payouts for 25 years. 

Costco has achieved this growth by continuing to add the number of its members. Data by Statista shows that the firm ended 2023 with over 128 million members, higher than 76.4 million in 2014.

This increase happened at a time when many analysts expected its momentum to slow because of e-commerce companies like Amazon.

Costco price increase

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The Costco stock price continued its uptrend after it published strong financial metrics for June. Its net sales jumped by 7.4% in June to $24.2 billion, an increase that was bigger than expected.

At the same time, the company boosted its membership fee for the first time since 2017. The price increase will affect its 52 million customers in the US and is understandable because of the rising inflation. 

Its Gold Star, Business, and Buisness ad-on members will have to pay $5 more, bringing the annual fee to $65. Annual fees for executive membership will rise from $120 to $130. By factoring inflation rate, $120 in 2017 would now be equivalent to $153, meaning that the price increase is not all that much. 

A key concern for the Costco stock price is that it is trading at a big premium compared to its weak growth numbers. Costco’s revenue growth stands at 7.75% while its forward metric stands at 6.45%.

In contrast, the company’s GAAP PE ratio is 55 while its forward 1 year multiple is 54. These are pricey metrics that are in par with Nvidia, a tech company that is growing by double digits. Nvidia has a forward P/E ratio of 51.15.

There are also concerns about Costco’s growth potential in the future. It has almost 610 locations in the US, 110 in Canada, and 40 in Mexico. The hope is that the company could grow its China locations, which stands at 7. 

Costco stock price analysis

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Costco stock

COST chart by TradingView

The weekly chart shows that the COST share price has been in a strong bull run for a long time. It has constantly remained above the 50-week and 100-week Exponential Moving Average (EMA).

The Relative Strength Index (RSI) has moved to the extremely overbought point at 80. The Money Flow Index, which is similar to the RSI but includes volume, is also nearing the overbought point. 

At the same time, the momentum indicator has jumped above 100. These metrics mean that the Costco stock is both overbought and overvalued.

Therefore, while the momentum could continue, the stock could suffer a reversal as we saw in 2022 when it dropped by 33% between April and May.

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