COST: Room To RunFundamentals
Pros
- Costco remains a fundamentally strong company benefiting from higher inflation as even wealthier consumers shift their spending habits to look for deals. See www.bloomberg.com (this applies to Walmart but I would argue that this is also Costco)
- Costco has been seeing stronger fundamentals than most of the market measured across various multiples (revenue, earnings, margins) suggesting a healthy company.
Cons
- Most of the price increase over the last year has been multiple expansion (almost double from high 30s to 50s). Stock is not cheap per se, maybe even overvalued..
- Fundamentals may persist but any negative surprises will likely cause excess sell off to remove some of that slack. With a strong consumer (for now) I don't think we will see that anytime soon. Need to see weaker consumption data in GDP or comp's before changing.
- Sell side analysts see limited space for the stock to run - with most targeting somewhere around 800 +/-50.
Technicals
Pros
- Daily price action looks strong with upward momentum. (See MACD).
- Point and Figure set up suggest are price target in the mid 900s to 1000s suggesting a 15-20% left in the upside.
- Wyckoff fundamentals look strong - most of the supply was taken out in 22' - the recent retest produced some supply but it was absorbed well (see price action post large red bar in weekly data, price flatlined and was able to produce easy reactions to the upside with less resistance than the downside).
Cons
- Approaching overbought conditions but not there yet.
