Source: Wikipedia Commons

The discount grocery chain was down 4.35% at 10:00 a.m., the worst performer in the S&P 100, on no particular news.

With a forward P/E above 30, Costco’s 21% gain over the past year was a triumph of hope over data. Last week the firm paid a special US$7 dividend, an unusual move given that Costco’s payout ratio is far lower than its peers. In effect, management kinda-sorta wanted to return money to shareholders, but it didn’t want to raise their expectations that payouts would continue by increasing its regular dividend.

Evidently the special dividend failed to inspire confidence, and with the retail sector in general and the retail grocery sector in particular in disfavor, investors puked out the name this morning. Costco looked like a bulletproof franchise, but its growth prospects are restrained. The consensus estimate shows 5%-6% revenue growth over the next two years in a highly competitive and uncertain market.

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