While the COVID-19 pandemic has been a death knell for many retailers, Costco Wholesale (COST) has seen rising sales. The stock has risen by 33 percent YTD and is among the top 100 gainers in the S&P 500. The company is scheduled to release its earnings for the first quarter of fiscal 2021 on Dec. 10. Should you buy Costco stock ahead of its earnings release?
Last month, Berkshire Hathaway, led by the legendary Warren Buffett, disclosed that it has exited its nearly $1 billion stake in Costco. While a leading asset manager exiting the position generally leads to a sell-off in the stock, Costco managed to dodge the bullet. Berkshire Hathaway wasn't a big shareholder anyway.
Costco on Stocktwits
Username bahinclev commented on Stocktwits that Costco was doing well even before the COVID-19 pandemic. The company's success continued after the pandemic started. The Stocktwits user is optimistic that the company will continue to do well even after the COVID-19 pandemic ends.
In the last four years, Costco’s revenues have increased at a CAGR of around 8.5 percent. That’s a healthy increase compared to its rivals, which have been losing market share to e-commerce companies like Amazon. The revenue growth has translated into a strong bottom line. In fiscal 2020, COST reported a net profit of $4 billion for the first time. The company's net income was only around $2.4 billion in fiscal 2016.
Does Costco pay dividends?
Costco has been paying regular dividends since 2004. The company announced four regular dividends totaling $2.75 per share in 2020. Based on the current stock price, it’s a yield of a paltry 0.75 percent. However, earlier in December, Costco announced a special dividend of $10 per share. The company has a history of paying special dividends. In 2018, 2016, and 2013, it paid a special dividend of $7, $5, and $7, respectively.
Costco share split
Costco has split its shares four times. The most recent split was the 2-for-1 split in 2000. Since then, the company hasn’t split its shares. However, given the rise in its stock price, management might consider a split in the future.
How's Costco's stock forecast?
According to the estimates compiled by CNN Business, Costco’s median target price of $395 is a premium of 5.6 percent over the current prices. Wall Street analysts might take a fresh look at their target price after COST releases its earnings after the markets close on Dec. 10.
Should you buy COST stock?
Costco trades at an NTM PE ratio of 38x, which seems reasonable looking at the growth prospects. The company has a strong brand and customer stickiness. Costco has been able to demonstrate strong sales and earnings growth. Going forward, domestic and international expansions would continue to fuel growth for the company. The stock looks like a good buy and could be a part of a core portfolio.
Looking at the technical parameters, COST stock closed marginally below its 50-day SMA (simple moving average) of $374.36 on Dec. 9. The 50-day SMA has been a strong support line for COST stock since June when it crossed above both the 50-day and 200-day SMA.