00:00 Speaker a
Let's talk about Costco, too. That's what you are lukewarm on that. Assuming there is a neutral rating out there, it sounds like valuation is your focus.
00:17 David
Exactly. So, here are a few things. Great company, we don't think it's a great stock, just because of the set location here and your revenue is nearly 50 times, your name is trading nearly 50 times. This is a big number. Walmart was also very big in the mid-30s, but relatively good. So Costco, an incredible operator. In our opinion, their executions are outstanding. You have these numbers that are consistent with one in each month. No one really makes this point in the consumer space, but what we worry about is that they do have an advertising business that is very similar to Walmart, but we think management has different intentions here, where you don't see all the upward flows to the bottom line, and in a typical way Costco brings it back into the membership experience. Therefore, lower prices, better rewards. This may be the right thing to do to protect your sales base, but we think investors expect more through this process. Then, if you have a chance to have all these investments to have a business with higher leverage points, just evaluate the article. I mean, you need medium unit numbers or high unit numbers to sell to make the profits higher. If you have established a potential macro environment, we think it's hard to afford 50 times the gain.
03:20 Speaker a
Then the final stock, the final stock, I want your goal. Now, that one, you are also neutral. Then why are you on the sidelines there, David? What do you need to look at before becoming more constructive?
03:42 David
Yes. This is already, Target has huge upward potential here, right? What you are talking about is stocks around the mid-90s, and profit margins are already under pressure. Their compensation sales slowed. We think this is what Walmart does in terms of delivery and convenience and attract customers who want to order online. Then, you also have stock shrinkage. Therefore, they have not completely solved this problem. You still have a lot of products locked in the store and the margins at this point remain blocked. But what we want to see is that discretion is an important part of this business, almost half of the product base and half of the sales base is discretionary of the target. This is where we have not seen recovery yet. Clothing, home decoration, electronics. So if you start seeing the shift there, know that this will certainly help the target profit recovery story, as we are emitting all the taxes today and about 50% of the product comes from overseas. In fact, we see some downside risks in the target’s recent figures.
