Costco Wholesale Corporation (NASDAQ:COST) has its own select product lines, but much of its business centers on selling high volumes of products to customers at prices that are only possible by selling in bulk. Costco’s revenues have been rock-solid, maintaining a growth rate of around 10% for the past two years. Accordingly, for Costco to maintain healthy margins, it must have a high rate of inventory turnover, and it’s done just that. Costco’s inventory turnover is cyclical, but it retains a predictable and healthy pattern.
In the past, my research has incorporated a Motley Fool Earnings Quality score, or EQ, that taps into a database that ranks individual stocks. The database designates an “A” through “F” weekly ranking, based on price, cash flow, revenue, and relative strength, among other things. Stocks with poor earnings quality tend to underperform, so we look for trends that might predict future outcomes.
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All three stocks have performed well in the past year. Even though Best Buy Co., Inc. (NYSE:BBY) has struggled to grow its revenues, the stock has climbed with the market and has been the best performer of the bunch. Part of the reason it has such a higher EQ over Amazon.com, Inc. (NASDAQ:AMZN) or Costco Wholesale Corporation (NASDAQ:COST) is that expectations were so low that any acceleration in the fundamental trends were likely to lead to outsized stock-price performance.
If management can execute its “Renew Blue” plan effectively, then Best Buy Co., Inc. (NYSE:BBY) stock could continue to climb as the company finds even greater success.
The article Does Best Buy’s Stock Live Up to Its Name? originally appeared on Fool.com and is written by John Del Vecchio.
Fool contributor John Del Vecchio, CFA, is the co-manager of the Ranger Equity Bear ETF and index provider to the Forensic Accounting ETF. He is also co-author of the book What’s Behind the Numbers? with fellow Fool Tom Jacobs. He has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Costco Wholesale.
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