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Investors who bailed on Costco made a costly mistake


Investors must take "seemingly disappointing quarter" numbers from high-quality companies such as Costco Wholesale with a grain of salt and listen to what management has to say in the conference call, CNBC's Jim Cramer said Monday.

The warehouse retailer, pushed to cut prices in the face of tight competition in the grocery arena, came up short on revenue in both its fourth quarter and fiscal year ending August. After declining ahead of the report last week, the stock hasn't missed a beat, rising more than 1.5% since the Thursday earnings call.

"Costco's a fantastic company, management told a great story of value and trust, and I think the stock's a terrific buy any time it gives you a pullback, just like the one it gave you the other day," the "Mad Money" host said.

"Costco knows that if they keep their customers happy, it will ultimately benefit the shareholders," he said. "And management has such a terrific track record that they've built up an enormous amount of trust. It's never been a mistake to give Costco the benefit of the doubt."

Cramer contended that the quarter was better than it looked on the surface. Some of the positive aspects of the report, he said, include the club's expanded membership base and renewal rates. Additionally, online sales grew nearly 20%, and the company launched a new store in Shanghai, which registered 200,000 members within weeks.

The media, and public for that matter, may have been misled by the tone that analysts took during the question-and-answer portion of the conference call, Cramer conceded. However, many firms that cover the stock actually raised their forecasts and not one downgraded it, he noted.

"Because I'd read the conference call the night before, I knew the headlines were wrong. The quarter was fine, and the stock had to be bought into weakness," the host said. "Sure enough, you've made a quick 10 points if you bought Costco into the panic."

On the call, Costco Chief Financial Officer Richard Galanti revealed that he expects "some impact" from tariffs, high freight costs are falling, and the company will take a methodical approach to opening new stores overseas.

In regard to the consumer economy, "we're still seeing good growth, certainly very good renewal rates, good results at openings," said Galanti.

Shares of Costco are up more than 44% in 2019, soundly beating the nearly 20% run on the S&P 500. The stock inched up 0.60% to close at $293.41 Monday.

After recording more than $152.7 billion revenue in the 2019 fiscal year, Costco is projected to grow more than 7% to nearly $163.7 billion in the current fiscal year, according to FactSet. The company has $129 billion market cap.

"Everyone who bailed on the stock anticipating a wave of slashed estimates ended up ... getting burned," Cramer said. "If you stuck with Costco ... if you gave management the benefit of the doubt, then look at the money you've made."


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