Costco (COST)...Not so teflon coated afterall...
COST reported same-store-sales (sss) for Nov that fell short of expectations, largely on consumer spending shifts away from electronics (high margins) and more towards staples and necessities (food...relatively low margins).
COST has been a 'recession proof' favorite of the market for some time which makes today's disappointment likely to meet with continued selling off the opening 6% drop. The 50dma is slightly below current levels and ought to be support, but many may recalibrate the 'recession-proofness' of COST and determine that more valuation extraction is needed.
Before jumping to that conclusion, however, I'd urge a recall of the pricing power that COST has given its largesse, not just with the buying consumers, but more importantly, with its suppliers! The consumer spending pattern shift might dent margins some, but probably not as much as it might with a smaller retailer with less clout on forcing suppliers to cut costs. Further, COST's fee-based business, which hasn't been raised of late, could easily be ratcheted up a bit without losing too many (any?) customers, much like when AMZN raised its Prime membership fee.
I see this as a 'buy on dip' opportunity (and I did).
That's NOT advice in anyway, but simply food for thought and discussion.
I'd also note that on the chart, COST was just breaking out to the upside of a flag formation and an historical 'swing zone' when these numbers hit. The 'swing zone' just below that is being tested now (roughly 500-505) along w/the 50dma below will be key to watch for a bounce...or not!
Eager to hear other opinions!
COST has been a 'recession proof' favorite of the market for some time which makes today's disappointment likely to meet with continued selling off the opening 6% drop. The 50dma is slightly below current levels and ought to be support, but many may recalibrate the 'recession-proofness' of COST and determine that more valuation extraction is needed.
Before jumping to that conclusion, however, I'd urge a recall of the pricing power that COST has given its largesse, not just with the buying consumers, but more importantly, with its suppliers! The consumer spending pattern shift might dent margins some, but probably not as much as it might with a smaller retailer with less clout on forcing suppliers to cut costs. Further, COST's fee-based business, which hasn't been raised of late, could easily be ratcheted up a bit without losing too many (any?) customers, much like when AMZN raised its Prime membership fee.
I see this as a 'buy on dip' opportunity (and I did).
That's NOT advice in anyway, but simply food for thought and discussion.
I'd also note that on the chart, COST was just breaking out to the upside of a flag formation and an historical 'swing zone' when these numbers hit. The 'swing zone' just below that is being tested now (roughly 500-505) along w/the 50dma below will be key to watch for a bounce...or not!
Eager to hear other opinions!
Penafian
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