Costco Sell Call with Downside Price Target
"And Costco is the final one. The shares are down 2% after Roth Capital partners cut the company's shares to sell from neutral. This caught my attention as we rarely see a seller rating on anything these days and the company has 24 buys and 15 holds. The analysts there are saying that despite an earnings beat he flags several underlying metrics are concerning like renewal rates fading, paid members slowing and store traffic decelerating on a year-to-year basis. And they see downside to $769 which would represent quite a big decline more than 10% from where we're trading currently at $869 a share."
This insight highlights a sell call on Costco where Roth Capital Partners downgraded the stock from neutral to sell. The commentary cites declining renewal rates, slowing paid membership growth, and decelerating store traffic as key concerns, and it mentions a downside price target of 769, signaling a potential drop of over 10% from current levels.
Costco Trade Call - Overpriced Despite Solid Fundamentals
"Costco's been drifting lower, again, not because the business is broken, but because the expectations were just way too high. The stock is at a 52-week low and trading for 50 times earnings, which looks attractive at first. However, when I hit the analyze button, the numbers showed that if you buy at today's price, you'd essentially break even on a discounted cash flow basis. Bottom line is, despite being a great company, it's overpriced right now. So, guys, good news. Move on. Find something else."
The analyst acknowledges Costco's strong business model and steady performance but highlights that its current valuation leaves little margin for upside. The discounted cash flow analysis suggests that the return would be effectively zero, prompting a decision to avoid buying Costco at current prices.
Sell Costco: Bad Price Despite a Great Business
"Costco is one of the best-run retailers in the world with loyal customers and consistent profits, but it's trading at a huge premium compared to its historical average. With a one-year price to free cash flow of 53 and a one-year PE of 51, the current price leaves almost no margin for error. Even a minor slowdown could result in negative returns over the next decade. For all its strengths, paying today's price doesn't make sense – that's why I believe it's time to sell or avoid buying at these levels."
The speaker acknowledges Costco's operational excellence but warns that the stock is overpriced relative to its historical valuation. The high multiples suggest that even small setbacks in growth could result in poor long-term returns, prompting a sell call.
Company Commentary on Costco's Expanding PE Multiple
"I did some research over the weekend. Um, and the PE of Costco going back to the start of the 21st century was around 20. Then it just exploded higher, got as high as 60 earlier in the year. I think it's not solely because Costco is suddenly massively more profitable; rather, it's a combination of modest margin tailwinds, emphasis on modest growth in e-commerce and international scale, the strength and stability of the membership model, a premium multiple for perceived defensive qualities, and investor rerating dynamics."
The speaker provides detailed commentary on Costco's valuation, noting that its PE ratio has expanded from around 20 to as high as 60. The commentary stresses that this increase isn't driven by a marked improvement in profitability, but by various qualitative factors such as margin tailwinds, e-commerce growth, and a stable membership model. This adds investor color to the stock without making a direct trade call.