Costco Stock (COST) Offers No Meaningful Appeal at the Current Price

Costco Wholesale (COST), popularly referred to as just Costco, is a well-known big-box retail store chain that sells items in bulk and offers household products and groceries at a discount.

When consumers anticipate unfavorable world events that might hinder supply-chain activity, such as the COVID-19 pandemic, they’ll frequently panic-shop at Costco. The company has evidently benefited from some unfortunate recent developments in the world, and that will likely limit future upside potential. Costco has a high valuation and a low dividend yield. I’m neutral on COST, and it doesn’t look like a good month for investors to go shopping on Costco stock.

Costco and the Dock Workers’ Strike

Dock workers on America’s East and Gulf Coasts officially walked off their jobs and began striking on October 1. However, their contracts with employers ended in late September, and consumers used this as an opportunity to stock up on essential goods. Many people remember what occurred near the onset of the COVID-19 pandemic, when citizens rushed to purchase large supplies of products like toilet paper out of fear they might encounter empty shelves later on.

While the dock workers’ strike has already been resolved, and will undoubtedly take a toll on the U.S. economy, it certainly gave a boost to Costco sales in September. The early part of October likely featured much of the same. Investors should keep this in mind as they assess Costco’s results.

Costco Acknowledges “Abnormal” Shopping Activity

Amidst the panic shopping that likely occurred in anticipation of the dock workers’ strike, Costco management acknowledged a shopping activity boost in September due to the onset of Hurricane Helene. Specifically, Costco’s management cited “abnormal consumer activity associated with Hurricane Helene and port strikes.” Hurricane Milton might “make it rain” again for Costco’s top line in October, but this is also another one-time event. Investors probably shouldn’t count on such events providing a boost to Costco indefinitely.

Breaking down Costco’s sales numbers for the ‘retail’ month of September (the five weeks ended October 6, 2024), the company’s net sales jumped 9% year-over-year to $24.62 billion. Moreover, during that same timeframe, Costco’s U.S. comparable-store sales increased 6.5% and the company’s e-commerce sales surged 22.9%.

The spike in e-commerce sales is eye-catching, but it’s easy to imagine shoppers ordering essential household goods online as soon as they heard about the port strike and hurricane developments. I can’t expect that Costco will maintain a ~23% growth rate in e-commerce sales for much longer.