Costco Wholesale Corp. (NASDAQ: COST | COST Price Prediction) stock is 3% lower over the past five days. The market is down almost 10%.
The reason for the strong performance seems to be leverage, and the retailer is not unlike Walmart in that regard. Costco says about half its products come from China, while Walmart says that is closer to 60%.
Each of the large retailers buys enough Chinese goods to have price leverage with China. Walmart flexed its muscles there. The Chinese government objected, but Walmart went on negotiating despite the warning.
The United States has imposed 34% tariffs on goods imported from China. It is hard to say how much Costco can reduce those, but the figure is certainly higher than that of small retailers.
The company has other advantages. Its membership program is rare in retail. Rivals Target and Walmart do not have it. Costco gets 70% of its operating income from these memberships, which means it has two sources of revenue and profits. It has 137 million members.
And there is Costco’s financial health. In the most recently reported quarter, revenue rose 9.1% from $58.2 billion to $62.3 billion, e-commerce rose 21%, and per-share earnings rose from 3.92 to $4.02. Plus, The company has $12.3 billion in cash on its balance sheet.
Costco is not recession-proof, but it is close.
Top Gaining Stocks
Top Losing Stocks