I know that 90% of the time it’s just best to inverse the DD’s on this subreddit, but once in a while a trend is so easy to see that even us morons get it right. Before Walmart’s earnings a few of us mentioned concerns for earnings misses and forecast cuts in the setting of increased labor and material costs in addition to lower consumer discretionary spending…
May 17: Walmart falls down 11% as its forecast is cut to nobody’s surprise. Meanwhile, Target barely budges, despite having a very similar business model and revenue/cost structure…because logic!
May 18: Target has a similarly horrible earnings and forecast and drops 26% in one day!
May 19: No way that Ross would fall down too, in fact the stock trades green for most of the day! After hours earnings are reported and it’s down a cool 23%. Who could have anticipated the same labor costs, supply side constraints, and decreased consumer spending projections would hurt its projections?!
Next week on May 26th after the bell Costco reports. Admittedly the stock has been beaten down 30% in one month…but is still up 10% in the past year, which is not likely to last when it will undoubtedly:
- Misses its analyst expectations on EPS and/or revenue, which were set prior to the recent retail earnings
- Cuts its projections from last quarter’s estimates
Amazingly the IV is not sky high yet and a slightly OME weekly put is only 4.5% from breakeven. Looking at all these 10-30% drops post earnings for its competitors with the same macro challenges its facing, this should be an easy one.
Position: COST 420p 50 contracts exp 5/27
TLDR: Costco is screwed
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.
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