Costco Wholesale Corporation

NASDAQ Global Select
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Somewhat Bullish +50

Is Costco Stock Finally Cheap Enough to Buy?

AI-generated analysis

📈 Costco reported accelerating growth with sales up 11.6% year-over-year in its fiscal third quarter ended May 10.

💰 Comparable sales increased by 9.4% during the same period, demonstrating resilience despite inflationary pressures.

📉 Earnings per share rose from $4.28 to $4.93, maintaining strong profitability even as costs rise.

🛒 Monthly results showed revenue growth of 14.5% year-over-year with comparable sales up 12.5%.

💵 The company's membership model provides reliable recurring revenue through annual fees of $65 or $130 for executive members.

📉 Costco stock has declined 13% this year while the S&P 500 reached record highs, creating a potential buying opportunity.

📊 The current P/E ratio of 49 is slightly lower than the three-year average of 52, though still considered expensive historically.

⚠️ Investors are concerned about future volatility as inflation persists and the high valuation makes the stock susceptible to corrections.

🤖 Long-term investors with a multi-year horizon may find the current dip comfortable for purchasing shares.

📉 The Motley Fool Stock Advisor team recently identified 10 best stocks to buy, excluding Costco Wholesale from their list.

🚀 Historical examples show that following Stock Advisor recommendations can yield massive returns compared to the S&P 500.

⚖️ The Motley Fool has positions in and recommends Costco Wholesale despite not including it in their top 10 current picks.

Bullish Signals
  • Costco is reporting accelerating growth despite the inflationary climate, with sales increasing 11.6% year over year in its fiscal third quarter ended May 10.
  • Comparable sales were up 9.4%, and profitability remains strong with earnings per share (EPS) rising from $4.28 to $4.93 despite rising costs.
  • Recent monthly results showed even better performance, with revenue increasing 14.5% year over year and comps up 12.5%.
  • Costco's reliable membership model generates loyalty and volume, providing reliable recurring revenue of $65 per annual membership or $130 per executive membership.
  • The stock is currently trading at a P/E ratio of 49 times trailing 12-month earnings, which is only slightly lower than its three-year average of 52, suggesting it may be approaching fair value.
  • Costco has historically been an expensive stock to buy due to its reliability for top performance, and the current dip could present a buying opportunity for long-term investors.
Risk Factors
  • The stock is down 13% this year while the S&P 500 hit record highs, indicating underperformance relative to the broader market.
  • Costco's price-to-earnings ratio has fallen from a historical high above 60x to 49 times trailing 12-month earnings, signaling that the stock was previously overvalued and may still be susceptible to further correction.
  • The Motley Fool Stock Advisor team recently identified ten stocks they believe are better buys than Costco, suggesting it is not currently a top pick for investors.
  • There could be more pressure on Costco stock in the near term as the market expects volatility going forward as inflation persists.
Full Analysis
Costco Wholesale (NASDAQ: COST) is reporting accelerating growth despite inflationary pressures, with sales increasing 11.6% year over year in its fiscal third quarter ended May 10 and comparable sales up 9.4%. The company's most recent monthly results showed even stronger performance, with revenue rising 14.5% year over year and comparable sales climbing 12.5%, driven by its reliable membership model that generates recurring revenue of $65 per annual fee or $130 for executive members regardless of spending. Earnings per share increased from $4.28 to $4.93, demonstrating strong profitability even as costs rise. The stock has declined 13% this year while the S&P 500 hit record highs, bringing its price-to-earnings ratio down to 49 times trailing 12-month earnings from a historical high above 60x, which some analysts view as potentially more attractive for long-term investors. While the Motley Fool's Stock Advisor team recently identified ten stocks they believe are better buys than Costco and highlighted their track record with past recommendations like Netflix and Nvidia, the article notes that Costco remains resilient and could be a suitable purchase for those with a long-term investing approach who can tolerate potential volatility as inflation persists.