If you live in the U.S. and you like to buy essential goods in bulk, then you’re probably familiar with Costco Wholesale (NASDAQ:COST). The question of the day, though, is about what to do when COST stock is suddenly trading at a discount.
Some traders will freak out and dump their shares, which is really a shame. While amateur investors are selling as a knee-jerk reaction, the smart money is happy to buy shares from them while they’re cheap.
Of course, this principle only applies to rock-solid companies, and Costco absolutely fits into that category. As we’ll see, the data proves that Costco is on firm financial footing even while COST stock is off of its peak price.
If you truly believe in buying low and selling higher, then this should be viewed as a prime investment opportunity. Besides, there’s a macro-level issue at work now, which won’t benefit consumers generally, but could be a growth driver for Costco in 2022.
COST Stock at a Glance
When times get tough, add COST shares to your portfolio. This strategy worked out well after the onset of the Covid-19 pandemic, as shoppers crowded stores to buy essential goods in large quantities.
How high did the Costco share price fly? It was a shop-til-you-drop frenzy as the stock sailed from $315 in March of 2020 to $571.49 in December of last year.
If you missed out on that rally, don’t feel bad. You may have another chance to buy COST stock at a favorable price point, as it fell below $500 in mid-January 2022. That brought Costco’s trailing 12-month price-to-earnings ratio down to around 41. This might not be as high as you would have expected, considering the stock’s powerful run-up last year.
Furthermore, it’s worth noting that Costco pays a forward annual dividend yield of 0.63%. Therefore, the shareholders will be able to collect some small dividend payments while waiting for COST stock to return to its all-time high.
One thing that the Covid-19 pandemic demonstrated is that when times get tough for U.S. consumers, they’ll flock to discount stores. Could the spread of the omicron variant strain prompt more discount shopping at Costco’s stores? It’s a possibility worth considering.
Yet, there’s another crisis that’s also happening now. As you may have heard, the most recent U.S. annualized inflation-rate print was a real headline grabber. Believe it or not, the inflation rate increased to 7% in December 2021. That’s the highest reading since June of 1982!
For food, the inflation rate was 6.3%, and that’s tough on U.S. consumers. Don’t be surprised, then, if people choose to dine out less often and prepare their own meals instead.
This is all quite unfortunate, but it’s a potential growth driver for Costco. After all, as the company’s name implies, it’s a haven of low prices for cost-conscious shoppers.
No Buyer’s Remorse Here
Even with inflation as a possible positive catalyst, Costco must prove its viability as a business enterprise. Fortunately, the data makes it evident that Costco is on firm fiscal ground.
Consider this: in just the retail month of December 2021 (which spans five weeks), Costco reported net sales of $22.24 billion. That represents an increase of 16.2% on a year-over-year basis.
And by the way, Costco isn’t only improving in terms of in-store sales. During the aforementioned five-week time frame, the company reported a 17.8% year-over-year increase in e-commerce sales.
All in all, Costco has proven itself as a revenue-generating powerhouse. During the first quarter of fiscal-year 2022, the company generated net sales of $49.42 billion, up 16.7% year-over-year.
The Takeaway on COST Stock
Inflation is a terrible thing that makes life harder for consumers. However, inflation could drive more shoppers to Costco, both in stores and online.
Furthermore, the financial data shows that Costco’s sales are robust and improving.
Therefore, you don’t have to get shaken out of the trade when COST stock pulls back. Just consider it a sale and get your shopping cart ready.
Costco currently gets a grade of “B” in my Portfolio Grader.
— Louis Navellier and the InvestorPlace Research StaffRetire Early With $3 Wonder Stock? [sponsor]
Ever dream of retiring 5... 10... 15 years early with help from one blockbuster stock? No guarantees, but tech futurist Luke Lango believes a tiny, under-the-radar $3 gem holds the key to disrupting the entire electric vehicle industry. You don't want to miss this... Get full details here.
Source: Investor Place