Costco Wholesale Corporation (COST) — While the Dow Jones Industrial Average and S&P 500 were each up more than 1% on Thursday, COST stock only gained 0.6%, indicating momentum is lagging in this retail leader.
This operator of more than 650 membership warehouse stores in the United States and around the world has experienced lagging sales and earnings.
COST stock gapped down on Dec. 8, following its most recent quarterly report. The company said comparable-store sales fell for the third straight quarter, as the value of overseas sales was hurt by a stronger U.S. dollar. Earnings of $1.09 per share were down 3% year over year and missed the consensus estimate by 8 cents.
Since the earnings announcement, analysts have lowered their EPS estimate for fiscal 2016 (ending in August) to $5.49 from $5.65. And they have dropped their fiscal 2017 estimate to $6.19 per share from $6.28 three months ago.
COST stock closed at $154.72 on Thursday, near the upper range of a trading band between $141 and $157. Low volume has characterized the advance from the February low near $141, and MACD is very overbought.
COST stock looks like a good candidate for a short sale at the next resistance line at $157 with a downside target of $141, which would provide a return of more than 10%.
Be sure to enter a stop-loss order at $163 to protect against the possibility of theoretically unlimited losses in the event of a rally. And be aware that if you hold shares short through a dividend, you will be responsible for covering it. Costco pays a quarterly dividend of 40 cents per share for a current yield of 1%, and its next ex-dividend date is expected in late April.
