After what was a rough outing for Costco (NASDAQ:COST), shares of the warehouse retail giant have started to come alive. The moves in COST stock are likely due to its sudden relevance in unprecedented economic circumstances. Similar to how the telehealth industry benefitted tremendously from the coronavirus pandemic, Costco could end up becoming cynically profitable from inflation.
As you’re well aware if you’ve done any shopping over the past few months, prices for virtually everything have increased conspicuously. Several economic factors have led to higher inflation in recent months.
Unfortunately, the problem continues to worsen, partially due to the wide scope of government stimulus programs and exacerbated by the Russian invasion of Ukraine. No matter how you measure inflation, the overriding reality is that more money is chasing after fewer goods. And if the 10-year breakeven inflation rate is anything to go by, prices could be coiling up to jump even higher.
On the surface, this framework isn’t natively helpful to COST stock. However, Costco members tend to shop in bulk. This is where the stereotypical joke about folks buying 800 gallons of mayonnaise actually transitions into a cogent argument for Costco shares.
Unless you have compelling evidence to the contrary, inflation appears poised to move higher from here. The Federal Reserve seems set on its approach to the problem, and thousands of miles away, the conflict between Russia and Ukraine does not appear to be near its end. The global supply chain issue will need to be resolved right quick for consumers to see a positive impact soon.
None of these factors are ready to materialize, thus incentivizing bulk purchasing behavior. It’s one of the few practical ways individual consumers can mitigate inflationary pressures, thus auguring well for COST stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
