Earnings Per Share (EPS) – Fountainheadinvesting

Costco (COST) $ 801 HOLD

Costco has a lot of positives:

Stable, steady, sustainable, and predictable revenue growth of about 5% a year. The business model has strong competitive advantages as the entrenched market leader – BJ’s is a distant competitor and I cannot imagine anyone coming in to even remotely rival Costco in the future.
The company has a growing membership base, which is its crown jewel and is expanding its physical locations at a slow but steady pace. They’re very careful and don’t increase more than 30 stores a year.
Costco’s operational metrics translate into higher profits – profits also grow predictably at 8-10% each year, faster than revenues.

The big negative is the valuation

Costco is an exceptional business and therefore always commands a premium. However, currently, it is priced at 49x 2024 EPS.
Trading at a historically high premium over the market,
Historically high PEG – With a growth of 10% the PEG ratio works out to 4.9 (49/10)
Outside of its elevated trading range of 35x earnings.
The best and perhaps the only time to invest in COSTCO is on major declines otherwise the return on investment would be too low, or we could even lose money if the stock drops from here or stays sideways for a while.
Let’s see if there is a drop post-earnings – I’ll update again.

Super Micro Computer (SMCI) reports this evening, after market close. If you recall, Super Micro had shot up from $300 just two weeks back to the $490 it is now, because of its revised guidance – it too had its Nvidia moment!

Second-quarter anticipated sales now expected to be between $3.60 billion and $3.65 billion, which was a significant increase from the previous forecast of $2.70 billion to $2.90 billion. The company anticipates an improvement in adjusted earnings to the range of $5.40 to $5.55, up from the initial estimate of $4.40 to $4.48.

This new guidance handily surpasses analysts’ expectations for the second quarter, set at $2.84 billion in revenue and earnings per share of $4.55. At midpoints, these revised projections indicate a 29% rise in revenue and a 24% increase in non-GAAP net income compared to Super Micro Computer’s earlier guidance.

I’m more interested in SMCI’s results as a good indicator for AMD and Nvidia (Nvidia), since they are the largest supplier for scalable rack systems for the data center GPU’s. If they overshoot even this revised estimate, I would look at AMD more closely.