Is Costco Too Expensive Here?

With shares of Costco Wholesale Corporation (NASDAQ:COST) trading at around $105.16, is COST an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Costco has been a big winner for many years now, but so was Mike Tyson. Past success increases the odds of future success, but it doesn’t guarantee future success. If Costco were to lose its edge and not stay alert to all competitor moves and macroeconomic trends, it would fail. Let’s take a look at some positives and negatives for Costco. This will give us a good idea of whether or not Costco is staying sharp.

Positives:

  • Top-tier management
  • Consistent improvements in revenue on an annual basis
  • Consistent improvements in earnings on an annual basis
  • Strong cash flow
  • Good debt management
  • 1.10 percent yield (not overly impressive, but still a positive)
  • Best value possible offered to customers
  • Member renewal rates have remained steady in recessions
  • Costumers have good credit (they won’t slow down as much during recessions)
  • Domestic and international growth

Negatives:

  • Comps sales growth of 4 percent in March (not the company’s best performance)
  • Unimpressive margins
  • Consumers dealing with high gas prices and higher taxes
  • Foreign currency fluctuations
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Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Costco, Wal-Mart Stores Inc. (NYSE:WMT), and Target Corp. (NYSE:TGT). Costco has a market cap of $45.96 billion, Wal-Mart has a market cap of $265.51 billion, and Target has a market cap of $44.17 billion.

COST

WMT

TGT

Trailing   P/E

23.56

15.53

15.29

Forward   P/E

20.87

13.26

12.45

Profit   Margin

1.90%

3.62%

4.09%

ROE

17.33%

22.42%

18.52%

Operating   Cash Flow

$3.34 Billion

 $25.59 Billion

 $5.32 Billion

Dividend   Yield

1.10%

2.40%

2.10%

Short   Position

1.30%

1.60%

3.20%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

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