Costco Stock More Overvalued Than Nvidia: Is It Still a Buy?
- Costco shares have surged by 64,000% since its IPO in 1985.
- The company is now considered more overvalued than Nvidia.
- Despite this, Costco continues to grow, attracting investors.
Costco Wholesale (COST) stock has been on a decades-long bull run, making it one of Wall Street’s top-performing companies. Since going public in 1985, its stock has skyrocketed by over 64,000%, climbing from $10 at its IPO to nearly $1,000 today. A $1,000 investment at the time of its IPO would now be worth $90,700, excluding dividends.
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Strong Revenue and Profit Growth
Costco’s success is largely due to its expansion strategy. Since 1985, Costco has grown from 9 stores to more than 882 locations globally.
The company’s annual revenue surged from $112 billion in 2014 to over $242 billion in the last fiscal year. Net income also rose from $3.7 billion to $6.2 billion during the same period.
Costco’s membership base has steadily increased as well, growing from 58 million members to around 120 million. Even though competition from Amazon, Walmart, Target, and BJ’s Wholesale Club has increased, Costco has maintained its strong performance.
Continued Growth for Costco
Costco’s recent financial results confirm its continued growth. In the latest quarter, comparable store sales in the U.S. rose by 6.2%, while international sales increased by 7.7% in Canada and 6.6% in other markets.
For the first half of the year, group comparable sales climbed 5.3%, with e-commerce also performing well. Costco’s net sales hit over $58 billion, and its net income reached $1.6 billion.
The company has increased its membership fees, raising the Gold Star Membership in the U.S. and Canada by $5 to $65, and the Executive Membership by $10 to $130. These fee hikes are expected to bring in over $5 billion in additional revenue.
Costco also boasts one of the strongest balance sheets in the industry, with $5.8 billion in long-term debt and $14.6 billion in cash and short-term investments.
The stock has continued to rise due to its reliable dividends and analyst ratings. Costco has a forward dividend yield of 0.51% and a payout ratio of 27%. It has increased dividends for the past 19 years, setting it on the path to becoming a future dividend aristocrat.
Is Costco Overvalued?
The main concern for Costco is its valuation. Currently, the company is one of the most expensive stocks in the retail industry.
Costco has a market cap of over $402 billion, with expected annual revenues of $254 billion and $273 billion for this year. Given its 2.8% profit margin, Costco’s expected annual profit ranges from $7.1 billion to $7.6 billion.
This gives Costco a forward P/E ratio of 55, well above the industry average of 20. For comparison, Walmart has a P/E ratio of 41, and Nvidia, a faster-growing company with better margins, has a P/E multiple of 42.
These metrics suggest that Costco is overvalued and would need to maintain significant growth to justify its high valuation. Costco’s current price of $907 also exceeds the average analyst estimate of $896.
Costco Stock Technical Analysis
On the technical front, Costco stock has been in a strong bullish trend for years. Recently, it broke above the key resistance level of $895, which invalidated the double-top pattern seen in previous months.
Costco’s stock is trading above all major moving averages, and the MACD indicator remains in positive territory. This suggests that the stock could continue rising, with bulls targeting the next key level of $1,000. However, there is also a possibility that the stock could experience a correction back to the $800 support level in the long term.
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