What Costco's Mixed Earnings Report Means for Stock Valuation

Costco (COST) shares are falling after the retailer posted a mixed fourth-quarter earnings report. Revenue was $79.70 billion, slightly below the expected $79.96 billion. Meanwhile, U.S. comparable sales, excluding gasoline and currency influences, were better than analysts expected.

Bill Kirk, senior research analyst at Roth Capital Partners, joins Morning Brief to discuss the earnings report and its impact on stock valuations.

Kirk believes Costco stock is “almost perfectly valued,” telling Yahoo Finance, “It's universally liked, it's doing extremely well, and the valuation and where it's trading reflects that.” While the stock is under some pressure following the earnings report, he explains, “Every little break in momentum, every little dip in margin is magnified at such a high valuation.”

Although Costco is still in a relatively strong position, Kirk is cautious about the stock's growth potential: “They're still gaining market share. The age of its members is decreasing, which is wonderful. The pharmaceutical industry has seen double-digit growth. The optics have increased in double digits.” E-commerce has grown by almost 20%, but the development is not necessarily progressing, and with a P/E ratio (price-earnings ratio) of up to 55% ), you have to keep your foot on the gas , if you stall perhaps even at a wonderful level, then you are giving up some of your winnings.

He notes that Costco is well-positioned to benefit from a weaker consumer seeking value. Kirk explains that the retailer offers some of the best value in areas such as grocery retail, which typically sees a boost when consumers stop dining in restaurants. Additionally, he praises Costco's ability to attract younger consumers, calling it a “wonderful long-term sign of market share capture.”

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This article was written by Melanie Riehl