Costco Wholesale (NASDAQ:COST) stock has slumped and is slowly nearing a bear market. It has plunged to its lowest level since January this year and is down by 17% from its highest point in May. This retreat will come to the test this week when the company releases its earnings report.
Costco Wholesale Earnings to Give Hints on Growth
Costco, the biggest US wholesaler, will be in the spotlight when it releases its results on Thursday this week. These results will provide more hints on its business as inflation remains at an elevated level.
The most recent results showed that Costco’s revenue rose by 11.6% in the third quarter to $69.19 billion. Its total comparable sales rose 9.8% in the quarter, with the net income rising to $2.19 billion.
Analysts are not highly enthusiastic about its upcoming earnings, with some expecting it to miss the estimates. The average estimate among analysts is that its revenue rose by 10% in the fourth quarter to $94.8 billion, bringing its annual figure to over $301 billion.
Costco’s earnings-per-share (EPS) is expected to come in at $6.53, up from $5.87 in the same period last year. For the year, EPS is expected to jump to $20.5 from $18.2 a year earlier.
A potential catalyst that may boost the stock is a special dividend and a buyback boost. It has a solid balance sheet with over $18.9 billion in cash and equivalents and an additional $1 billion in short-term investments. All this is in contrast to just $5.6 billion in long-term debt.
The company’s valuation has improved a bit lately. While still highly overvalued, the forward price-to-earnings ratio of 43 is lower than the five-year average of 45.
The options market points to high volatility when the company publishes its earnings. Its implied volatility has risen to 35%, higher than the historical volatility of 17. Calls point to an upward trend towards $920.
Costco Stock Points to More Downside
The daily chart reveals that the COST stock has been in a strong sell-off, moving from $1,093 in May to the current $895. It has dropped below the important support level of $905, its lowest level on July 9.
The stock has also moved below the Strong, Pivot, Reverse level of the Murrey Math Lines tool. Also, it remains below all moving averages, while the Relative Strength Index (RSI) has moved below the neutral level of 50.
Therefore, there is a risk that the stock will drop further, potentially to the ultimate support level of $875. The alternative scenario is where it bounces back briefly and then resumes the uptrend.
Still, it is worth noting that analysts have a bullish forecast for COST, with the average consensus being $1,092.
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