Competitively, I would guess that the Costco membership model holds up and that its own ecommerce methods will enable it to continue to thrive. However, it may do so while having trouble hanging onto that high-twenties earnings multiple. This is the squishy part of stock selection where knowing what the earnings might be isn't going to help.
How can you possibly know what multiple investors will be willing to pay for those earnings, even assuming you can nail them (which you can't, IRL)?
In an industry that is only beginning to feel the full force of Bezos & Co, it's probably smarter to assume that current multiples will all be called into question by investors attempting to handicap a radical future.
First-level thinking would be to snap up high-quality Costco after this recent plunge because there's been an overreaction – after all, hasn't Amazon been competing in groceries for a decade at this point? Second-level thinking would be to say, yes, everyone is aware that Costco is high quality and that there's been an overreaction – but what if the overreaction is merely a prelude to a new status quo, where multiples shift permanently lower owing to a new level of competition in the game?
I have no position in the stock. If I were long, I'd be using a bounce as a selling opportunity, not a reason to wipe my brow in relief. This ain't over.
This commentary was originally published on TheReformedBroker.com.
Josh Brown is the creator of The Reformed Broker blog, CEO of Ritholtz Wealth Management and a regular on CNBC"s "Halftime Report." Follow him on Twitter @reformedbroker.
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