There are two things wrong with the report that mean the strength was already priced into the market. The first report shows strength in the membership club arena as shoppers look for bargains. There is a chance that the market will set up for another great buying opportunity because of this. There is a chance that the stock could fall to the $400 level or lower if support buying doesn't kick in sooner. The stock is expensive compared to the broad market S&P 500 and its peers and this could pose a problem in the near term. Walmart, the parent company of Sam's Club, trades close to 22X their earnings, which is quite a discount compared to other clubs.
MarketBeat.com - MarketBeat The company had a great quarter and brought in $72.09 billion in revenue, but it only beat the consensus figure by a small amount. The 5th consecutive quarter of revenue growth in the range of 15% to 18% is a result of the deceleration from the previous quarter and prior year. The gains were amplified by a higher store count. Growth was strongest in the US, with a gain of 15.8% or 9.6% on an X- fuel basis which is better than the 9.3% Marketbeat.com consensus figure.
The report has two things wrong. The company had a good margin for the quarter and the year, but the $4.20 in GAAP earnings is not as expected. This result is weaker than it should be because of the small margin of topline out performance. There is evidence of margin contraction and that is hurting share prices. It can be expected that the company will open more stores in the coming year. If nothing else, the law of large numbers will cause the growth to slow.
It would have to be a significant increase in membership fees to really make a difference. The company has reported $4.22 billion in membership fees over the past year. A 10% increase in membership fees wouldn't increase the net at all. The risk is that Sam's Club membership is less and that may cause customers to go elsewhere.
Over the last nine months or so, shares of Costco have traced out a nice looking Head & Shoulders Reversal pattern and have only to confirm the pattern to enter a deeper decline. The neckline of the pattern is very close to where the pre market action has the price of Costco. The market could go down to the $380 level if a move below that level is confirmed. If the market bottoms out at the $470 level, investors should expect the market to resume its uptrend and retest the $600 level.
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