It seems that Costco (NASDAQ:$COST) has finally been defeated.
Shares of the American membership club retailer have dropped 13% to $158.82 in just a month. Why? Primarily because investors have grown anxious about a world where Amazon (NASDAQ:$AMZN) owns Whole Foods (NASDAQ:$WFM), an organic food pioneer. Unfortunately, Costco’s market capitalization has fallen a shade more than $9 billion.
It’s not just investors overreacting to the acquisition; the stock market really does have a justified reason to be concerned about the future of Costco.
Many speculate that Amazon’s $13.7 billion deal for Whole Foods will prompt food prices across the board, over time. If this were to happen, Costco would be in big trouble seeing as it already has razor-thin profit margins. In response, Walmart (NYSE:$WMT) is likely to increase its price-cutting efforts, as is Kroger (NYSE:$KR). Sooner or later, there will be a full-blown price war in the grocery aisles.
Aside from that, Amazon Prime continues to become a key player in society, and now that the company is moving forward in the world of food people may start to question as to why they even have a Costco card. Add that to the fact that millennials tend to live in smaller houses than their parents (most people don’t have pantries or storage closets), one has to wonder how Costco will fit into this generation’s plans.
With that being said, not everyone on Wall Street agrees with the doom and gloom attitude that surrounds Costco.
“Costco’s business model remains intact with healthy membership growth and strong renewable rates. In addition, prior year comparable sales comparisons remain favorable as we enter FY18 and earnings growth should begin to benefit from membership fee increases,” explained Raymond James. “So, while Amazon’s agreement to buy Whole Foods, when consummated, will add a new dimension to the grocery business, it does not materially impact Costco’s unique business model, and we would be buyers on Costco’s recent weakness.”
All in all, buyers need to remain on guard. By Wednesday’s close, Costco’s shares dropped 0.5% to $158.02.
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