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Why Costco, Amazon, and eBay Stocks Sank This Morning -- Then Bounced Back

By Rich Smith - Updated Mar 9, 2020 at 5:06PM

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Consumer panic might actually be good news for these companies -- when it prompts panic buying.

What happened

The novel coronavirus is among us, and it's time to panic.

At least, that appeared to be the consensus among consumers last week. Costco Wholesale (COST -1.41%) shelves on the West Coast were denuded of their supplies of bottled water and toilet paper. Meanwhile, in the world of online retail, eBay (EBAY 0.14%) was forced to ban sales of face masks and hand sanitizer in order to clamp down on price gouging. And rival Amazon (AMZN -1.44%) threatened criminal prosecution (through cooperation with state attorneys general) against price gougers of coronavirus-related products.

With their names now firmly tied to news stories about the outbreak, therefore, it was no great surprise to see shares of Costco stock down more than 6% in early trading Monday, while eBay and Amazon fell more than 7%.

But why have they since recovered?

Buying tons of toilet paper.

Image credit: Getty Images

So what

For recover they have. As of market close, Costco stock was off 3%, eBay was down a mere 2.4%, and Amazon was down 5.3% -- not insignificant declines, to be sure, but far better performances than the Nasdaq as a whole, which fell 7.3%.

For better or worse, I fear the answer to why these stocks bounced back can be found in the very same novel coronavirus outbreak that frightened investors away from all the other stocks today.

"Thanks" to COVID-19, you see, shoppers are going on a panic-buying frenzy, buying up both things that could actually help keep them safe from the virus (soap, hand sanitizer, and face masks) and also things that probably aren't all that necessary to buy in such bulk -- water and toilet paper. Rightly or wrongly, this shopping frenzy is likely to spur sales at all three retailers this quarter.

Now what

How long will this last, and will sales of all these goods be only "pulled forward" into the first quarter, resulting in sales numbers slipping as the year progresses?

That's hard to say precisely, because it depends on precisely what people are buying. Nonperishable consumer goods such as toilet paper and bottled water, I imagine, will get panic-bought in bulk at first, and later, once the panic passes, those emergency supplies will be slowly worked through over the remainder of this year. More perishable medical supplies -- drugs with expiration dates, for example -- might be bought today and thrown into the garbage months or years from now, having never been used at all. Other items, and I'm thinking primarily of face masks here, will neither expire nor get thrown out but will simply sit on shelves, collecting dust until the next health scare emerges.

Net-net, though, and looking at the short term, I have to agree with investors who curbed their fears and ventured back into Costco, Amazon, and eBay today. I think a large portion of the panic buying we saw over the weekend is going to translate into incremental sales growth today and not subtract from future sales.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Costco Wholesale and eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$140.64 (-1.44%) $-2.05
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$532.20 (-1.41%) $-7.62
eBay Inc. Stock Quote
eBay Inc.
EBAY
$48.57 (0.14%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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