An apparent tailwind hit yesterday's value stocks, a new development seen in the declining shares of Costco Wholesale Co. (NASDAQ: COST) after the company released its latest set of quarterly earnings this week. Costco stock is now down over 2% after the report, a bearish sentiment that comes despite the Federal Reserve (the Fed) recently cutting interest rates by the most since the 2008 financial crisis.
However, some investors argue these rate cuts might have been priced into stocks like Costco and Walmart Inc. (NYSE: WMT). However, some of this momentum has not worked its way through stocks like Dollar General Co. (NYSE: DG), which supposedly offer more value to the consumer. In today's economy, value isn't enough. Markets seem to prefer economies of scale and big enough cash flows to enable management to reinvest in technology and efficiency.
The consumer staples sector could become the main preference for investors during this consumer uncertainty, the question becomes whether Costco can still deliver more upside after pricing in interest rate cuts and trading as high as a 55.0x price-to-earnings (P/E) ratio today. This can be answered by comparing the recent company results to what Wall Street analysts now expect to see out of the company moving forward.
Costco Stock's Strong Financials Set High Expectations for Future Growth
Starting with the most common driver, the top line. Costco delivered a net increase ...
