Costco (COST) is down 2% today after reporting March comp sales that were lower than expected, but up 4% excluding gas and foreign exchange. I can’t imagine how much they would have been up if it was not winter in March across most of the country 🙂
Since the 10% rally from $140 with the announcement that the company would pay a special dividend of $5, to its all time highs at $156 in late January/ early February, the stock has based straddling $150 until today’s high volume breakdown.
This is a stock that I just don’t get. The company gets nearly 30% of its sales from outside the U.S., has a dividend yield of less than 1%, and trades at 26x expected fiscal 2016 earnings growth of only 9%. On merely a P/E basis the stock is trading at more than a 10 year high:
Despite today’s move, 30 day at the money implied vol at 15.5% reflects the lack of the movement in the stock over the last couple months since the dividend:
[caption id="attachment_52649" align="aligncenter" width="600"]
COST 1yr chart of 30 day at the money IV from Bloomberg[/caption]
The next identifiable event will be the company’s April comp sales in the first week of May and then the big one, fiscal Q3 results on May 27th. The stock is generally not a huge mover on earnings as they report comps monthly, with a long term average move of only about 2%.
But the March data was poor, following weak Feb data, at some point in the near future we could see investors become a bit more sensitive to equity valuations in the face of weakening fundamentals.
I don’t love the idea of pressing a short on a down 2% day, but if the stock were to open a bit higher tomorrow I may consider the following trade:
Hypothetical Trade:
COST ($149) Buy May 29th weekly 147/137 Put Spread for about $2.40
Not pulling the trigger here, but will follow up in the coming days.