Regarding Costco, we want to separate the business from the stock. Imo anyway.
The business is great from my customer perspective. I like the merchandise, food, prices, service, relatively quick checkout, free food tastings. Looks like others agree. My local stores are generally pretty busy it seems to me (and I try to shop off-hours).
Considering just the stock, I would try to categorize the stock as either a value stock or a growth stock. When I bought Sept.-Nov. of last year between $34 and $31, I considered it a growth stock.
Now I'll want to consider re-categorizing it. After price drop of past couple days, it's still no value stock. If it's a growth stock, it's a busted one. Sales are up, but earnings are now expected to be similar to last year ($1.48-$1.50 vs. $1.48, diluted,).
So I want to know if the earnings problem is systemic or readily fixed. Marketwatch says, "On a conference call with analysts, Costco said that half of its profit shortfall is the result of pricing skirmishes with Sam's Club, particularly in the high-margin commodities and drugs categories. Though the aggressiveness in cutting costs to consumers is just short of a pricing war, analysts worried that it could go on for some time." So it seems to me that some major issues hindering bottom line performance aren't going to go away.
I see COST still in an expansion mode (opening new stores), and I expect that COST's good management will somehow work through and resolve some of the issues that are hindering bottom line performance. COST had a drop in earnings from 2000 to 2001, and the company came back from that. So did its stock if one bought after the stock had abruptly dropped. I acknowledge that the stock price now is relatively high with a p/e of about 20. OTOH, in the past decade COST has sported a p/e that high or higher in most every year.
I'm holding on to my shares, and I'm considering adding a bit if COST drops a little more. I'd be guessing that the bad news is mostly out, and that with the passage of time, we'll see some improvement in bottom-line performance (in addition to continued same-store sales growth) and a recovery in the stock price.
Jmo, and I've been wrong many, many times
Paul Senior |
