3 Things to Watch in the Stock Market This Week

Stocks market volatility continued to impact investors last week as both the S&P 500 (SNPINDEX: ^GSPC) and the Dow Jones Industrial Average (DJINDICES: ^DJI) notched their third straight week of declines. Indexes remain higher on the year, but returns have fallen a bit since the start of May.

Trade tensions between the U.S. and China are likely to dominate economic headlines in the shortened trading week ahead. Meanwhile, earnings reports from Costco (NASDAQ: COST), Ulta Beauty (NASDAQ: ULTA) and Okta (NASDAQ: OKTA) could send those stocks moving over the next few days. Let's take a closer look at what investors can expect from these reports.

Costco's membership trends

Costco steps up to the earnings plate on Thursday. Investors already know some key details about the warehouse retailer's demand trends, including the fact that comps have gained a healthy 6% in recent months. That boost indicates solid growth in both the online and physical shopping channels.

This week we'll find out important details about that expansion pace, including how much of it is coming from increased customer traffic. The traffic metric was a stellar 5% in the previous quarter, and could impress investors again this week.

Costco will likely comment on pricing pressures, particularly in light of massive tariff increases set to take effect on Chinese imports in the coming weeks. Like Walmart, the chain has strategies in place to minimize the impact of any trade skirmishes, but tariffs still could hurt profits and pressure growth. But the key trend to watch on Thursday will be membership. Last quarter Costco subscribers renewed at a stellar 90.7% in the U.S., and that metric could reach record territory soon if it continues inching higher.

Ulta Beauty's outlook

Ulta Beauty stock has trounced the market in 2019 as the beauty products retailer stabilized sales and profits following an almost two-year slowdown. Comparable-store sales rose nearly 10% during the holiday season, and operating margin increase for the first time since mid-2017.

A woman applies facial cream.

Image source: Getty Images.

The company's 2019 outlook, which CEO Mary Dillon and her team issued back in mid-March, was also conservative on a few points. These include the prospect of slower growth from both the company's online sales channel and its existing network of stores. Ulta Beauty is also planning to open fewer new locations -- about 80, compared to 100 in each of the last two fiscal years.

Yet investors might continue pushing the stock higher if sales growth trends track closely to management's guidance, and if Ulta continues targeting a modest operating margin increase in 2019. A positive outlook on both points would suggest the retailer has successfully navigated a tough selling environment in the cosmetics industry.

Okta's client base

Investor enthusiasm is surging for software specialist Okta, whose business sits at the nexus of attractive industry shifts concerning cloud services, security, and digital transformation. That prime positioning has allowed sales to rise by nearly 60% in the past year as Okta's client base expanded to include a higher proportion of the world's biggest businesses.

But those strong results also raise the stakes for Thursday's earnings report. CEO Todd McKinnon and his team believe the current market opportunity just scratches the surface, so management is prepared to continue spending aggressively in areas like marketing, development, and sales to grow its bookings. That means bottom-line profitability may be at least another year away.

Investors could also see volatility around cash flow and profits in 2019 as Okta's base tilts further toward large clients who spend at least $100,000 annually on its services. The pace of these big-business wins will likely influence any updates management makes to their outlook, which currently calls for sales growth to slow to between 33% and 34% this year from 56% in 2018.

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Demitrios Kalogeropoulos owns shares of Costco Wholesale and Okta. The Motley Fool owns shares of and recommends Okta. The Motley Fool recommends Costco Wholesale and Ulta Beauty. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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