It didn’t seem as though Costco Wholesale (NASDAQ: COST) could be stopped. Shares of Costco stock were on a bull run that didn’t seem to be slowing down. That is, until its most recent earnings report.
Costco stock saw shares come down slightly after reporting a miss on revenue projections. And this raised some alarm bells for investors.
So, is it now too late to get into the stock? Or does this earnings dip provide an opportunity? Let’s look at whether it’s too late to buy Costco stock now.
What happened
Before we get into Costco stock in depth, let’s discuss earnings just a bit. Second quarter earnings did in fact see bottom line results that surpassed expectations. Earnings per share (EPS) hit US$3.92, which easily beat out the US$3.63 expected. The bottom line was further helped along by a US$94 million tax benefit. This benefit was related to the special dividend the company announced last year.
The downside? Costco stock saw revenue come in at US$58.4 billion, below the US$59.1 billion expected. That’s despite seeing comparable store sales up 5.8% year over year, better than the 4% expected.
Shares of Costco stock went on to drop by 9% after earnings were reported. And that wasn’t helped by the fact that the company’s leadership is in the midst of a transition. So, what’s next for Costco stock and its shareholders?
Considerations
The leadership change could certainly be worrying for investors, given the long track record the chief executive officer has enjoyed. However, when it comes to Costco, it’s an easy-to-understand company that has seen success that’s only likely to continue. And there are many reasons why.
The company’s membership model generates significant revenue for the company through membership fees. This upfront cost creates a barrier to entry for the casual shopper, and leads to a loyal customer base that comes and spends heavily. In fact, this has provided the company with protection even in economic downturns, with the membership model and focus on value making its practically recession proof.
What’s more, that value comes with high-quality products, making Costco continue to be attractive to shoppers. Many will come to stretch their dollars, and end up spending far more than originally planned in the process. And Costco stock is constantly looking to expand on these valuable additions for its members.
Bottom line
So is Costco stock a buy? I would definitely say yes. The company’s recent dip provides a great point of entry, even though there was an earnings miss. That’s unlikely to last long, with the company proving again and again it’s a solid long-term hold. Right now, shares may have fallen back by 9%. But that’s on top of 50% growth in the last year.
What’s more, not only can you grab its 0.56% dividend yield with a safe payout ratio at 26.7%, there are special dividends that come fairly regularly for the stock. Something most other companies don’t even consider! So whether you want this company for stable results, protection in a downturn, or dividends, Costco stock frankly always looks like a good buy.
