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Costco Selloff


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Anyone think the 30 bucks selloff is a overreaction to Amazon buying Wholefoods?

I'm not saying COST is cheap at this level (although it almost never seems to be cheap) but it looks like an overreaction.

My guess is it will be closer to 3-5 years to see Amazon start taking share from COST.

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Anyone think the 30 bucks selloff is a overreaction to Amazon buying Wholefoods?

I'm not saying COST is cheap at this level (although it almost never seems to be cheap) but it looks like an overreaction.

My guess is it will be closer to 3-5 years to see Amazon start taking share from COST.

 

Stock market is forward looking, supposedly.

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Costco still looks a little expensive.  I was ballparking fair value at around $135-ish.  My main valuation inputs were 6-7% revenue growth, 3.2% operating margins gradually climbing a bit to 3.4% over time, a 32% long term tax rate (maybe too high if tax reform comes), and discounting at 9.5%. Lowering the discount rate to 9% raise the valuation estimate to around $147.

 

 

Mike

 

 

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Guest Cameron

To add my two cents, I do not own COST, AMZN, or any retailer for that matter. But I think Amazon buying a brink and mortar retailer for groceries shows that people just do not want to buy their groceries online. About 1-3% of groceries are bought online and that number hasn't moved over the last couple of years and its not like there isn't companies out there that don't provide this service people just simply aren't using them. Every time Amazon goes and plays in someones else ball park instead of playing in their own they seem to fail. For example they tried copying eBay with zshops and it failed until they created something completely different where they allow sellers to be their own amazon and compete on price with amazon. The Amazon Fire phone, they tried to play on Apples' field and they got burnt again. Amazon Destinations, trying to compete with online travel agents that were doing in far longer than Amazon. Amazon Register, they had lower prices than Square and PayPal etc, but just trying to enter a field that competitors have been in longer than you and not doing anything new but having lower prices has been the recipe for failure for Amazon. What Amazon does best is innovate, and sell items online, Amazon Web Service was innovative, fulfilling online orders and providing the warehouse space for other retailers was innovative, the Kindle, you guessed it, innovative. When Amazon plays on their terms and in their space, online, then competitors are in a world of hurt. I'll finish my rant by saying that I'm not counting Amazon out but they just do not have a good history when battles are fought on the competitors field.

 

Cameron.

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Costco still looks a little expensive.  I was ballparking fair value at around $135-ish.  My main valuation inputs were 6-7% revenue growth, 3.2% operating margins gradually climbing a bit to 3.4% over time, a 32% long term tax rate (maybe too high if tax reform comes), and discounting at 9.5%. Lowering the discount rate to 9% raise the valuation estimate to around $147.

 

 

Mike

 

 

I don't disagree about the valuation of Costco, but we're getting closer to a 52 week low which: A) Has only happened a few times in the past several years and, B) Has been a really good buying opportunity when it has happened. I can't state where it becomes a "buy", but it's got to be close.

 

Secondarily, I love the experience at Costco. It's the Amazon of brick and mortar in that it's my first choice for much of what I purchase. Further, when I check pricing for items there, even against Amazon, it's rare that they're beaten. I'd not mind owning it and will look closer the more it declines.

 

-Crip

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I don't disagree about the valuation of Costco, but we're getting closer to a 52 week low which: A) Has only happened a few times in the past several years and, B) Has been a really good buying opportunity when it has happened. I can't state where it becomes a "buy", but it's got to be close.

 

Secondarily, I love the experience at Costco. It's the Amazon of brick and mortar in that it's my first choice for much of what I purchase. Further, when I check pricing for items there, even against Amazon, it's rare that they're beaten. I'd not mind owning it and will look closer the more it declines.

 

-Crip

 

 

I would agree with all your points, Crip.  I'm a fan as a customer with my Costco Executive membership card and Costco Visa, and it's a fantastic business.  I've started regularly checking Costco's price at this point.  I'd really like to get it a little cheaper.

 

Mike

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I keep getting small(ish) and add on items in separate two day ups shipments from Amazon (I'm a prime member) and they are often double boxed.  I then think, "this cannot be economically viable."

 

I prefer to buy stuff from Costco online because I can take it back if I don't like/want it and the prices are usually better.  Also amazon has some skeezy reseller who do stuff like list like K-cups (coffee) for $200+.  Going into the warehouses is a nightmare, but I don't like shopping or concrete or crowds.

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon. 

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amazed at the spread.

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Guest Cameron

I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amaze at the spread.

 

Wouldn't that mean Amazon is being out priced?

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amazed at the spread.

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amaze at the spread.

 

Wouldn't that mean Amazon is being out priced?

 

Yes....but no one seems to care...at least not yet. I pointed out in the AMZN thread a bit ago that I was surprised at how much cheaper some items from Walmart.com were. Was shocked because that didn't use to be the case, but Walmart was dramatically less expensive on a number of items.

 

Have been considering getting rid of my prime account in response, but have not done so yet.

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Guest Cameron

I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amaze at the spread.

 

Wouldn't that mean Amazon is being out priced?

 

Yes....but no one seems to care. I pointed out in the AMZN thread a bit ago that I was surprised at how much cheaper some items from Walmart.com were. Was shocked because that didn't use to be the case, but Walmart was dramatically less expensive on a number of items.

 

Have been considering getting rid of my prime account in response.

 

Thinking about it Amazon can most likely get away with being more expensive because of the added features of prime. As well as if Amazon has the ability to sell items for more than competitors while at the same time growing revenue high percentage clip you think they would have the ability to post some profits. This is part of the reason I can't seem to understand Amazon, I can find businesses who are far more transparent in their financials as well.

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

OT. I sold my read books and used computer games on Amazon in the past. Nowadays it's really peanuts mostly. Once it a while there might be price worth going to post office, but mostly not. For most books I can't even donate them, used bookstores don't want them...  :(

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I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amaze at the spread.

 

Wouldn't that mean Amazon is being out priced?

 

Yes....but no one seems to care. I pointed out in the AMZN thread a bit ago that I was surprised at how much cheaper some items from Walmart.com were. Was shocked because that didn't use to be the case, but Walmart was dramatically less expensive on a number of items.

 

Have been considering getting rid of my prime account in response.

 

Thinking about it Amazon can most likely get away with being more expensive because of the added features of prime. As well as if Amazon has the ability to sell items for more than competitors while at the same time growing revenue high percentage clip you think they would have the ability to post some profits. This is part of the reason I can't seem to understand Amazon, I can find businesses who are far more transparent in their financials as well.

 

Nobody reads shit on CoBF.  8)

 

To recap again:

 

1. Granola and coffee: was hugely expensive on Amazon. 3rd party prices. 2x Walmart. Was buying on Walmart. No longer true. Now Amazon prices are below Walmart and are true Amazon prices. Good bye 3rd parties.

 

2. Nikon B700. 3rd parties $100 cheaper than Amazon official. Walmart too. Walmart is using 3rd parties though. And all 3rd parties selling grey market/international version of the product that may or may not be same quality as US version. So bought from official Amazon. No official store has price lower than Amazon.

 

YMMV and all that.

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Guest Cameron

I sell on Amazon as a 3P seller and mainly sell books.  In an attempt to grow my business I get together via Web-Ex with a group of other sellers in a kind of mastermind group.  However we are all too secretive to really share our secrets so its been less than useful.  However, one person told me that his wife has replaced her salary (she worked at a daycare (minimum wage-ish) and 100% of what they buy is from Walmart, Target and Costco and sell on Amazon.

 

I have a friend that does that. I was amaze at the spread.

 

Wouldn't that mean Amazon is being out priced?

 

Yes....but no one seems to care. I pointed out in the AMZN thread a bit ago that I was surprised at how much cheaper some items from Walmart.com were. Was shocked because that didn't use to be the case, but Walmart was dramatically less expensive on a number of items.

 

Have been considering getting rid of my prime account in response.

 

Thinking about it Amazon can most likely get away with being more expensive because of the added features of prime. As well as if Amazon has the ability to sell items for more than competitors while at the same time growing revenue high percentage clip you think they would have the ability to post some profits. This is part of the reason I can't seem to understand Amazon, I can find businesses who are far more transparent in their financials as well.

 

Nobody reads shit on CoBF.  8)

 

To recap again:

 

1. Granola and coffee: was hugely expensive on Amazon. 3rd party prices. 2x Walmart. Was buying on Walmart. No longer true. Now Amazon prices are below Walmart and are true Amazon prices. Good bye 3rd parties.

 

2. Nikon B700. 3rd parties $100 cheaper than Amazon official. Walmart too. Walmart is using 3rd parties though. And all 3rd parties selling grey market/international version of the product that may or may not be same quality as US version. So bought from official Amazon. No official store has price lower than Amazon.

 

YMMV and all that.

 

I would guess its a cat and mouse game when it comes to prices, in the book Everything Store it is mentioned that Amazon web crawls competitors online.

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Guest 50centdollars

Costco rarely gets cheap. Here is the average P/E over the last 3 yrs, 5 yrs and from 03-17 ytd.

 

                                      Price                                P/E

                                                                      Peak      Trough      Avg.       

3-Year Average            $148.31                    28.1x    20.8x        24.8x

5-Year Average            $133.17                    28.1x    18.8x        23.6x

Average ('03-'17 YTD)  $93.69                      28.1x    14.3x        21.0x

 

I guess if it gets to low 20's its time to buy.

 

BMO did a price study comparing Amazon and Costco based on a basket of 54 items. Unfortunately, they do not mention which products were selected.

 

They concluded that costco.com  prices were 17% lower than Amazon.com on an overall basis.  Prices on national brands were 19% cheaper on Costco.com compared to Amazon.com, while Kirkland Signature products had a roughly similar price gap of 16%. See attachments for charts.

 

I think this whole Amazon/Wholefoods thing is overblown. People like to look at their groceries before buying them. Especially produce, veggies and meats. There was a company who tried this in the Toronto area called Grocery Gateway. My girlfriend and I tried it several years ago and the produce and veggies were not great so we did not use it again. The company was bought by Longos, which is a grocery chain in the Toronto area. Not really sure how its doing. I dont really see their trucks driving around much. I remember watching a Dragon's Den episode and one of the dragons mentioned that he was one of the original investors in Grocery Gateway and he lost his investment on it.

 

We will see what happens but I think its overblown.

 

 

 

 

costco.PNG.41c193d238c1777fa6e7a4348405e1cc.PNG

costco_2.PNG.16f7f12d755cd7f90265fb6c8a4bd04a.PNG

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To add my two cents, I do not own COST, AMZN, or any retailer for that matter. But I think Amazon buying a brink and mortar retailer for groceries shows that people just do not want to buy their groceries online. About 1-3% of groceries are bought online and that number hasn't moved over the last couple of years and its not like there isn't companies out there that don't provide this service people just simply aren't using them. Every time Amazon goes and plays in someones else ball park instead of playing in their own they seem to fail. For example they tried copying eBay with zshops and it failed until they created something completely different where they allow sellers to be their own amazon and compete on price with amazon. The Amazon Fire phone, they tried to play on Apples' field and they got burnt again. Amazon Destinations, trying to compete with online travel agents that were doing in far longer than Amazon. Amazon Register, they had lower prices than Square and PayPal etc, but just trying to enter a field that competitors have been in longer than you and not doing anything new but having lower prices has been the recipe for failure for Amazon. What Amazon does best is innovate, and sell items online, Amazon Web Service was innovative, fulfilling online orders and providing the warehouse space for other retailers was innovative, the Kindle, you guessed it, innovative. When Amazon plays on their terms and in their space, online, then competitors are in a world of hurt. I'll finish my rant by saying that I'm not counting Amazon out but they just do not have a good history when battles are fought on the competitors field.

 

Cameron.

 

 

Great Post and a good reminder that Amazon doesn't do everything well. 

 

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TJX has been following a similar trajectory to Costco lately. I think many of these brick and mortars are falling on the fear AMZN will replace them. AMZN has a long way to go.

 

Yep.  TJX is another great business that I don't own but would be interested in buying if it gets a little bit cheaper.

 

Mike

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