Costco(COST)

Costco Wholesale Corporation

Stock: COST

Rating: Good

Author: Waleed M. Tariq

Summary

  • Costco stock has outpaced the market 52 weeks ago and YTD.
  • The company has solid fundamentals, a great business model, and good management.
  • I recommend this firm a ‘hold’ due to its high valuation multiples. I expect it will get cheaper, giving investors an entry point.

Bullish

  • The company has excellent fundamentals, a terrific business plan, and effective management.
  • Costco’s 52-week and YTD returns beat the S&P 500 and its competitors by 63% and 2.5%, respectively.
  • The corporation has 17 straight years of dividend growth.

Bearish

  • Current values make returns for investors iffy at best.

Sustainable membership model

  • Despite a greater merchandise-sale intake, most of the company’s income comes from membership dues.
  • By offering bulk products at lower prices, the company may undersell competitors and retain customers.
  • The company’s bottom line benefits from the membership program’s lack of advertising.

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  • Average Costco member household income is approximately $93,000, leading to over 91.3% retention.

Effective management

  • The company’s efficient resource use is industry-leading. Costco’s steady improvement screams dependability.

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  • Advertising cuts boost profits. Costco’s operating margin would be around $3 billion at 0.5% marketing.
  • Costco’s personnel management practices are exemplary.
  • Better-than-competitor figures suggest the organization attracts and retains better employees, leading to low turnover and high revenue per person.

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Valuation

  • PCF, PS, PE, and PB all beat Walmart’s. These facts show that despite the company’s remarkable achievement, the market will adjust.

Conclusion

  • COST stock has potential at $578. High valuation multiples could hurt investor sentiment and drive the price down, creating an entry point.