Costco Continues to Beat S&P 500

JP Morgan has upped its Costco Wholesale (COST) price target to $502 from $475, while keeping its overweight rating. JP Morgan is one of several investment firms that raised its Read More... The post Costco Continues to Beat S&P 500 appeared first on TipRanks Financial Blog.

Costco Continues to Beat S&P 500

JP Morgan has upped its Costco Wholesale (COST) price target to $502 from $475, while keeping its overweight rating.

JP Morgan is one of several investment firms that raised its price target for Costco following its fourth-quarter earnings report, which beat expectations. Net sales for the quarter rose 17.5 percent, to $61.44 billion from $52.28 billion last year. In addition, net sales rose 17.7 percent for the fiscal year to $192.05 billion from $163.22 billion the previous year.

Comparable sales were strong across all regions, especially in Canada, where they rose close to 20 percent.

Still, the average analyst isn't as bullish on Costco shares as JP Morgan is, over the next twelve months. The average price target of the 17 Wall Street analysts following the stock in the last three months is $479.47, with a high forecast of $525.00 and a low forecast of $385.00. The average Costco price target represents a 2.51% change from the last price of $467.75.

One problem with Costco stock is its valuation. The stock is trading at 40 times the next six-month earnings, almost twice P/E of the S&P 500.

Then there are supply chain issues that may limit sales growth in the short run. Already, the company has announced purchase limits to certain items that are in short supply.

I am bullish on this stock. (See Costco stock charts on TipRanks)

Costco: Good Company and Good Investment

Costco is a good company and a good investment. It's a good company because it's popular among consumers paying membership fees for the privilege to shop at its stores. The company is ranked highly in several high-profile company lists, including the American Customer Satisfaction list, where it beat Amazon (AMZN) back in 2018.

Costco is a good investment because it has delivered superior returns to its shareholders. Over the last ten years, Costco has delivered an average annual total return of 21.54 percent, compared to the 16.57 percent for the S&P 500.

Plenty of Room for Long-term Growth

Costco is the 3rd largest global retailer and the 12th largest Fortune 500 company, with a market capitalization of $206.78 billion. It currently operates 817 warehouses, including 565 in the United States and Puerto Rico, 105 in Canada, 39 in Mexico, 30 in Japan, 29 in the United Kingdom, 16 in Korea, 14 in Taiwan, 13 in Australia, three in Spain, and one each in Iceland, France, and China. The company also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan, and Australia.

This number of stores is a fraction of the amount that the world's largest retailer, Walmart (WMT), has, meaning that Costco has plenty of room to grow. That's especially true in China, where the company has only one store. Seeking bargains, customers have been storming the store.

While it's unclear whether Costco will achieve JP Morgan's bullish target in the short term, one thing is clear: Costco has plenty of room to grow and deliver superior returns to long-term investors.

Disclosure: At the time of publication, Panos Mourdoukoutas had a position in Costco.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Costco Continues to Beat S&P 500 appeared first on TipRanks Financial Blog.

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Luckin Coffee: An Unlucky Investment?

Chinese coffee chain Luckin Coffee (LKNCY), a company with negative margins, shouldn’t be trading at a higher multiple than Starbucks (SBUX), according to Quo Vadis president John Zolidis. I am Read More... The post Luckin Coffee: An Unlucky Investment? appeared first on TipRanks Financial Blog.

Luckin Coffee: An Unlucky Investment?

Chinese coffee chain Luckin Coffee (LKNCY), a company with negative margins, shouldn’t be trading at a higher multiple than Starbucks (SBUX), according to Quo Vadis president John Zolidis.

I am bearish on this stock. (See Luckin Coffee stock charts on TipRanks)

Disconnect between Market Valuation and Fundamentals

Zolidis, who sounded the alarm early about the ailing chain’s woes, made this comment following LKNCY's filing of a 10k for 2020 and settling of various lawsuits. At the same time, the company did not provide any quarterly P&Ls.

“The bottom-line is that LKNCY is currently valued by the market at $5B, which is roughly 5x our 2022 revenue estimate,” Zolidis said. “This is despite the fact that 2020 EBITDA margins were negative 39%. Even if we take the best quarter of 2020, we estimate a RLM of 1% and an EBITDA margin of negative 20%. Also worth noting, LKNCY burned through $1.1B of fraudulently acquired funds in 2019 and 2020.”

Luckin has no analyst following on Wall Street. TipRanks assigns a Smart Score of 5 to the company, citing decreased hedge fund activity, low investor and blogger sentiment, and lack of fundamental and insider data availability.

Meanwhile, TipRanks cites the rise of risks surrounding the company. The company has cited a total of 101 potential risks.

A Change in Strategy

For years, the Beijing-based coffee chain was opening coffee shops at a feverish pace, trying to match and surpass industry leader Starbucks.

The problem is that the two companies have different store concepts. Starbucks' store concept is the “third place,” a comfortable place where people can enjoy mixed espresso drinks with friends and associates away from home and work. This store setting makes the demand for Starbucks products inelastic, meaning that it can charge a premium price for its products over the competition and maintain profitability.

Luckin’s store concept is “coffee to go,” where people can pick up coffee. Unfortunately, this setting makes the demand for its products elastic, meaning that it cannot charge premium prices for its products and maintain profitability. That’s at the root of the company’s woes.

To turn things around, its leadership has been closing down its worst-performing stores, scaling back on promotions, and reducing operating expenses. While this is the right strategy, Zolidis thinks it won’t work. “Customer transactions fell at a double-digit rate every quarter in 2020,” he says. “Has this continued into 2021? Covid is probably not helping a business that chose to put most locations in office towers.“

While he thinks that Luckin’s strategy won’t work, he’s still concerned about the company’s valuation going forward. His model suggests that Luckin gets a positive EBITDA by 2023, but he thinks it doesn’t make sense for a business with this financial profile to trade at a higher multiple than Starbucks or Shake Shack (SHAK).

Bottom Line

In short, Luckin is a money-losing coffee chain with a high market valuation in search of a strategy for its survival. Investors chasing after its shares should be reminded that hype is never a good substitute for due diligence.

Disclosure: At the time of publication, Panos Mourdoukoutas had no position in Luckin Coffee.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Luckin Coffee: An Unlucky Investment? appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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