Despite reporting a strong quarterly earnings result, Costco Wholesale (COST) is still around 15% below its yearly high. The company’s stock is poised to re-test lows reached in August and September, when markets fretted over Amazon.com’s (NASDAQ: AMZN) entrance into the supermarket business.
The stock sold off on “sell the news” on October 6, when Costco reported it earned $919 million, up 18% from last year. Membership fees grew 13% to $943 million and make up nearly three-quarters of operating income. Instead of rallying on the results, markets are determined to reward trendy stocks like Amaz.com or Tesla.
Yet like Wal-Mart Stores (NYSE: WMT), revenue keeps growing and the attractive value of it and Costco persist. Eventually, the valuation gap between these two companies and the high-flier stocks will end. COST shares trade at a forward P/E of 24x. Wal-Mart is even more attractive with a forward P/E of 17 times.
Costco is a solid, performing company and this trend will not change in the next while. Once markets evaluate Amazon’s prospects in the grocery store business, it will realize that Costco still has a sound business model. Expect Costco reporting another strong quarter in the next period. Ahead of that happening, the stock may rally in anticipation of an earnings beat.
