Is Costco stock a ‘buy’ on post earnings weakness?

Costco Wholesale Corporation (NASDAQ: COST) is in focus this morning after reporting weaker-than-expected sales for its holiday quarter.

Should you buy Costco stock today?

Nonetheless, the retailer said its net sales were up 4.7% year-on-year in February, thanks to the Lunar New Year. But that’s not enough for Arun Sundaram (Analyst at CFRA Research) to recommend buying Costco stock.

Fundamentally, we think Costco is a solid story. But valuation keeps us a bit hesitant. It trades at north of 30 times forward earnings. That’s one of the most expensive valuations in our big box retail coverage.

His “hold” rating on the retail stock suggests investors should wait for a meaningful pullback before hoping on to it. The analyst expects Costco Wholesale to raise its membership fee this year as well.

Costco takes a hit to eCommerce sales

According to Costco, its digital sales tanked 9.6% versus the same quarter last year related primarily to softening demand for big-ticket discretionary items. On Yahoo Finance Live, Sundaram added:

Operating expense was a little bit heavier than expected, up about 8.0% year-over-year. That resulted in some expense deleverage and that could be a little bit worrying.

The Nasdaq-listed firm saw more demand this quarter for its private-label food, as per the earnings press release. Costco stock is now up only slightly versus the start of 2023.

Notable figures in Costco’s Q2 earnings report

Earned $1.47 billion versus the year-ago $1.30 billion

Per-share earnings also climbed from $2.92 to $3.30

Revenue jumped almost 7.0% year-on-year to $55.3 billion

Consensus was $3.21 a share on $55.6 billion of sales

Comparable sales increased a less-than-expected 5.2%

Costco Wholesale did not issue its guidance for the future on Friday. CFRA’s Sundaram concluded:

Retail discretionary spending is under pressure and that’ll likely continue to be under pressure for the rest of this year.

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