Valuation Hits Costco's Multi-Year Rally & COST Options Trade

Core Viewpoint - Costco's stock has been in a downtrend for several months, despite strong performance metrics and expectations for earnings growth [1][4]. Performance Overview - Over the last five years, Costco has shown tremendous performance, but concerns about valuation have emerged [2]. - Since February, Costco's stock price has decreased by approximately 15%, from around $1075 [3][4]. - The earnings multiple has shifted from approximately 40-57 times earnings to around 45 times, indicating a general multiple compression [3][6]. Financial Metrics - Sales are expected to report an increase of about 8%, with earnings projected to rise around 6% [3]. - Membership fees have contributed to a total net income of approximately $5.3 billion [3]. - Earnings estimates for this year have risen by about 15%, with next year's earnings expected to be around $22, up from a prior estimate of $19.80 [5]. Market Sentiment - Despite improvements in market capitalization and net income, the stock price has declined, attributed to valuation concerns [6]. - Comparable sales for October were reported to be up 6.6%, indicating ongoing sales strength [7]. Trading Strategy - A potential trading strategy involves a bull put spread, structured to capitalize on support at the 100-week moving average [9]. - The trade aims to earn about $3.50 per share, with a risk of $6.50, offering a return on risk of approximately 53% and a 68% probability of profit [11][12].