Costco stock is a bargain
Short interest has dropped almost in half, which should be a good sign in anyone's book.
Rapid inventory turnover enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.
Lower prices of merchandise have effected revenue. Transactions have been up 5% year over year, but the discounting of prices has hurt revenue growth. The best news is that the membership renewal rate of 87.5% is one of the highest in the industry.
Short sellers are running for the door. On May 14, short interest was 6.7 million shares, and on Sept. 14, short interest had dropped to only 3.5 million shares. That's a drop of almost half and should be a good sign in anyone's book. Much of the reason for the short interests having to cover can be attributed to the share-price increase.
Share price was up 15.04% in the past month alone, with the stock hitting 19 new highs in the past 20 sessions, including four in the past five. Barchart's technical indicators give the company a 96% overall "buy" signal, with the current price of around $64.65 well above its 50-day moving average of $58.04. The 14-day Relative Strength Index is 79.91% and rising.
Wall Street loves this stock, with 16 of the 21 brokerages following the company recommending their clients buy this stock. The buy reports are based on estimates that sales will increase by 9.1% this year and 6.6% next year. The double-digit earnings projections are increases of 13.20% this year, 11.30% next year and a five-year annual EPS growth rate of 12.79%. That's pretty impressive.
The stock has everything I look for:
- Recent upward price momentum with a falling short interest
- Wall Street brokerages issuing "buy" reports based on increases in sales and double digit earnings growth for at least five years
- General investor sentiment overwhelmingly positive
Disclosure: Jim Van Meerten through Marketocracy Capital Management has an interest in the stocks mentioned in this blog.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The solid report comes a month after the retailer closed all of its Canadian operations.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.