Why Costco Stock Is Down By 3% Today

Key Insights

• Costco’s quarterly report easily beat analyst expectations, but the stock moved lower. 
• The stock market is nervous as the second round of negotiations between Russia and Ukraine yielded no results. 
• In this environment, a strong report from Costco failed to provide enough support to its shares as the company is valued at more than 35 forward P/E. 

Costco Stock Drops Despite Strong Report

Shares of Costco  gained downside momentum after the company released its quarterly report.

Costco reported revenue of $51.9 billion and earnings of $2.92 per share, beating analyst estimates on both earnings and revenue. The company’s comparable sales grew by 11.1% in the fourth quarter, adjusted for the cost of fuel and currency dynamics.

Costco’s earnings also showed strong growth as the company reported profit of $2.14 per share a year ago. The company also noted that it managed to mitigate cost despite supply chain issues.

However, the strong report failed to provide enough support to Costco stock, which made an attempt to settle below the $515 level.

What’s Next For Costco Stock?

Analysts expect that Costco will report earnings of $12.93 per share in the current fiscal year and earnings of $14.13 per share in the next fiscal year, so the stock is trading at roughly 37 forward P/E.

This is not cheap for a retailer, and the current valuation may present a problem in case S&P 500 continues to move lower. In this scenario, traders will pay more attention to high-PE companies, and any bad news could serve as a perfect excuse to get out of such stocks.

While Costco is a defensive stock, it may not get enough buyers in case the market starts to worry about the scenario which includes higher prices but lower growth due to the current rally in the commodity markets.

For a look at all of today’s economic events, check out our economic calendar.