Costco Stock Slips on Gross Margin, Online Sales Disappointment

Short-term traders have been unusually call-skewed toward COST

Emma Duncan
Oct 5, 2018 at 9:54 AM
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Costco Wholesale Corporation (NASDAQ:COST) is down 2.7% at $225.37, after the company said gross margins fell 35 basis points to 10.92% and online sales grew at their slowest pace of the year in its fiscal fourth quarter. The retailer also said quarterly profit arrived at $2.36 per share -- in-line with estimates -- while revenue of $44.41 billion just beat expectations.

Long term, Costco stock has been climbing the charts, benefiting from double-barreled support at its 30-day and 40-day moving averages. And while the shares have breached these trendlines today, the 80-day moving average is cushioning the blow. Plus, the shares aren't too far removed from their Sept. 11 record peak of $245.16, and remain 35% higher year-over-year. What's more, COST may be signaling a stock rally into 2019.

Digging deeper, a fair amount of optimism is being priced into the shares. This is per COST's Schaeffer's put/call open interest ratio (SOIR) of 0.86, which ranks in the low 34th percentile of its annual range. In other words, short-term traders have been unusually call-skewed toward the bulk retailer, with call open interest outweighing put open interest among contracts expiring within three months. 

Further, analyst sentiment has been mostly optimistic, with 15 of the 21 firms following Costco stock holding "buy" or better ratings. Plus, the retailer's average 12-month price target of $239.63 stands at a premium to current levels. However, both RBC and J.P. Morgan Securities lowered their COST price targets today to $253 from $252, respectively.


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