Should you buy Costco stock after Oppenheimer’s recommendation?

Shares of US retailer Costco Wholesale Corp (NASDAQ:COST) appear to be well-positioned for a rebound following a pullback late last week. The company’s stock fell by nearly 2.4% on Friday after announcing its most recent quarterly results on Thursday after markets closed. 

Costco has not recovered from the decline but on Tuesday appeared to position for a rebound after finding support at around $376.14 per share. This came after Oppenheimer analyst Rupesh Parikh reiterated the firm’s overweight rating on the stock with a price target of $425.

Why Oppenheimer thinks investors should buy Costco

Costco operates a chain of membership-only big-box retail stores. Oppenheimer thinks that the Washington-based company could increase membership fees, thereby boosting revenues and earnings. The research firm also pointed to a potential special dividend, especially in the fiscal year 2022, as a potential catalyst for a stock price increase.

COST earnings are expected to grow by 12.90% this year and 10.47% next year. The bottom line is also expected to grow at an average of 10.90% for each of the next five years. In the most recent quarterly results, Costco posted revenue growth of 21.50%, while earnings per share grew by 45.60%.

The company’s shares are currently priced at a trailing 12-month P/E ratio of 35.55, which is relatively higher compared to Zacks’ average of 23.63 for the discount stores industry. This implies a potential case of overvaluation relative to the company’s closest peers. Therefore, it may well need to increase membership prices to boost revenue and earnings for long-term growth.

Technical overview

Technically, Costco shares appear to have found support around the $376.14 level. The stock has now gained slightly to trade at $378.23. There is still some room left to run before reaching its previous highs of about $388.26. It also appears to be recovering from oversold levels of the 14-hour RSI.

Investors can target potential rebound profits at around $388.26 or higher at $400.12. Key support levels can be found at $371.49 and $360.44.

The bottom line: you may consider buying COST stock’s rebound

COST stock appears well-positioned for a rebound. However, it is not clear how long the upward movement can continue, given the company’s valuation relative to the industry average. Nonetheless, if COST was to increase membership fees, then this would make it an attractive long-term buy.