Costco: Value For Customers But Not For Investors (Archive)
Costco’s stellar customer value contrasts with stretched valuations and weakening investor return drivers.
This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.
Elevator Pitch
- Costco's incremental growth acceleration is driven only by new warehouse expansions as same-warehouse-sales growth is constant. This can lead to an erosion in return profiles.
- Stock price appreciation over the last 2 years has been driven mostly by a 42% multiple expansion with minimal earnings growth. Yet, the growth profile now is weaker.
- Costco deserves a premium valuation vs its peers. However, I believe a 168% premium to the median 1-yr fwd PE is excessive.
- Relative technicals vs the S&P 500 show a false breakout of a weekly resistance level. Thus, I anticipate further downside and hence underperformance vs the broader market.
- COST has a track record of delivering results mostly in line with expectations. Hence, I do not anticipate major surprises in the upcoming Q4 earnings report.
Read the full article here.
Disclosures and Disclaimers
Past performance ≠ future results. Not investment advice. See full Disclaimer.
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