Might Costco Shares Plummet by Almost a Third?
In a rapidly evolving retail landscape, Costco (NASDAQ: COST) standsout as a beacon of stability, rooted in unwavering dedication to revenue growth and customer satisfaction. The warehouse juggernaut's shares have climbed by 5%year-to-date, outstripping the S&P 500's 2% decline. Bonus: Costco's soaring sales in January 2025 clocked a 9% year-over-year growth, surpassing the US retail sector's 4% growth.
But Buckle Up: Even Costco isn't invincible to economic turmoil. In 2022, its stock nosedived by as much as 30% over just a few quarters, highlighting its sensitivity to market fluctuations. So, if history repeats itself, could its current share price of around $940 tumble down to $650?
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What's Cooking Today?
Costco's expansion plans, broader product offerings, and enhanced membership rewards promise a storm of changes. However, play it cool-the US economy's health is a significant factor to consider.
Watch Out: Costco's business model hinges on international trade, with around a third of its U.S. sales sourced from imports. A 25% tariff on Canadian and Mexican imports could potentially cause grocery price hikes, grocery shortages, and bump up the prices of electronics and furniture at Costco.
Inflation Anxiety: Sure, inflation concerns have cooled somewhat, but they're still a thing. Roll back the clock to Trump's aggressive policies on tariffs and immigration, and we reopen the debate on a possible return of inflation. Add a potential US economic downturn to the mix, and you've got the recipe for a recession. Check out our research on the economic big picture.
Global Tension: The stage is set for a rollercoaster ride-the Ukraine-Russia conflict, escalating trade tensions, and shaky relationships with traditional allies like Canada, Mexico, and Europe lurk on the horizon. Slam the brakes, these factors underscore the critical importance of closely examining the economic outlook.
Can Costco Stock Weather a Storm?
Curious to know how resilient Costco stock is during a downturn? Our answer: more resilient than the S&P 500 in recent economic downturns. Although many expect a soft US economic landing, let's consider the potential severity of a future recession:
- 2022: With a 30.6% drop from its high of $600.04, Costco recovered to pre-Crisis levels by 7 December 2023.
- 2020: During the COVID pandemic, Costco dipped 13.6%, but rebounded to pre-Crisis levels by 9 July 2020.
- 2008: In the Global Financial Crisis, Costco plunged 48.5%.
Shielding Your Wealth
At $940, Costco's valuation appears costly, with earnings of 58 times last year-a stretch compared to the pre-pandemic price-to-earnings range of 25 to 30. Costco's decelerating growth in FY 2024, recording the slowest growth in seven years, could give you pause. Whether you're a fan of Costco's low prices and convenient services, or a shareholder, ponder this: will you keep your Costco stock or sell if it begins to plummet to $800, $700, or even lower?
To fare better, consider the Trefis High-Quality portfolio integrated into Empirical Asset Management's asset allocation strategies, which thrived during the 2008-09 period when the S&P tumbled by over 40%.
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- Despite its past sensitivity to market fluctuations, Costco's resilience during economic downturns has proved more robust than the S&P 500, as evident in recoveries from drops in 2020, 2008, and even 2022.
- As Costco's growth rates decelerate, amongst other anticipated economic challenges, shareholders may question whether to hold onto their Costco stocks or sell, should prices drop to levels such as $800, $700, or lower.
- For added security and stability during uncertain economic times, investors might consider integrating the Trefis High-Quality portfolio into their asset allocation strategies, as it demonstrated exceptional performance during the 2008-09 recession when the S&P 500 declined significantly.
