Shares of Costco Wholesale Corporation (NASDAQ:COST) fell once gain on Monday following Friday’s earnings bloodbath. That puts the two day loss at $12.46, or a nearly 7.5% drubbing. One would think, given the huge negative reaction in COST stock, that Costco had missed badly versus expectations.
Instead, COST actually beat analyst consensus on both the top and bottom line. Given that, I think the selling is way overdone and that Costco is due to consolidate around current levels.
InvestorPlace feature writer James Brumley does an outstanding job providing a deep drill down into the earnings report, noting the slowing earnings growth and ongoing fears of competition in the space from Amazon. Important to remember that COST did continue to grow, with 6.1 % same store sales handily exceeding expectations of just 5.2%.
I think the fear of getting “Amazoned” is overtstated at current prices.
The combination of higher earnings and lower stock price also means that COST stock is much more attractive from a valuation standpoint. The current P/E of 26 is approaching the cheapest levels of the past 5 years and roughly inline with the overall market.
The premium multiple that Costco had in comparison to the overall market has been eliminated. I would look to be a buyer on any further weakness.
Technically, Costco shares are getting oversold on a 9 day RSI basis with a reading below 30. Previous instances when COST stock was this oversold proved to be significant intermediate term lows.
Shares are also nearing the critical $150 support level which has proved to be formidable in the past, so COST is likely due for a bounce.