Costco got beat down today. The psychological trend of the market is moving from a sunny warm day to a gray cold day. Mr. Market is feeling low and willing to sell “anything”.
Costco is fundamentally doing well.
This latest downtrend is the kind of situation that occurs all the time in the market. When it occurs, it is a great time to pick up those babies that are getting thrown out with the bath water. When the mood of the crowd turns to sour, the general populace sees everything as half-empty.
Sure Costco’s P/E is in the high twenties, but it has been at that level for a long time. While I’m not a high P/E growth investor, Costco’s pretty consistent growth over the last 15 years supports it.
Attached are several charts about Costco constructed from Costco’s 10K info. There are many metrics to look at but these capture the major points for a simple analysis– sales, net income and return on equity.
- The trend in Q1 sales since 2003 has been pretty steady. Nice consistent growth
- The percentage change in year to year Q1 sales has trending up since 2016.
- 2016 (1.32%), 2017 (6.29%), 2018 (9.94%), 2019 (10.25%)
- Their growth is still increasing at an increasing rate!
- The trend in Q1 net income since 2009 is increasing nicely.
- The percentage change in year to year Q1 net income has been trending up since 2016.
- 2016 (-3.23%), 2017 (13.54%), 2018 (17.43%), 2019 (19.84%)
- Return on equity for the full year from 2015 through 2018 is solid
- 2015 (16.44%), 2016 (21.92%), 2017 (19.06%), 2018 (24.18%), 2019 (23.92%)
Now is the time to be looking at fundamentals because most of the crowd doesn’t care about the fundamentals once they get in a dour mood. Many don’t care about the fundamentals at ANY time. They are just “riding the wave, dude!”
Sure, you may say, “But I’m looking forward.” To that I would say great, a consistent past track record is the best indicator of management’s ability to navigate the future – no matter what happens.
I want to know what those sellers are smoking, because they are clearly not living in reality.
