If You'd Invested $1,000 in Costco 10 Years Ago, Here's Your Return Today
Key Points
Costco outperformed the S&P 500 over the last 10 years by a wide margin.
Much of the stock's previous 10-year return was due to an increase in the price-to-earnings multiple.
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Costco Wholesale (NASDAQ: COST) has been a rewarding investment for investors. It would have made early investors millionaires, but even if you had bought the stock in 2015, you would still be outperforming the S&P 500.
A $1,000 investment in Costco stock 10 years ago would be worth about $6,400 today, assuming you bought more shares with the dividend. This beats the $4,000 you would have earned investing in an S&P 500 index fund.
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But what about an investor buying shares today? Here's what an investor can reasonably expect to earn over the next 10 years.
Image source: Getty Images.
Is Costco stock a buy?
Costco has been steadily growing its member base for years, and it currently has 146 million cardholders. It may have a long runway for continued growth, particularly as it expands its store presence in the U.S. and internationally.
However, investors should be aware that much of the stock's return over the last 10 years was due to investors paying a higher multiple for the company's earnings per share. Costco's price-to-earnings ratio has increased by more than 50% since 2015, and is currently trading at 46 times its trailing-12-month earnings.
The stock's valuation is currently high, which may limit upside over the next few years. Costco is growing its earnings at approximately 10% year over year, and the consensus analyst estimate projects long-term earnings growth of 9%. If the stock is still trading at 46 times earnings, this would turn a $1,000 investment today into approximately $2,600 in 10 years, excluding dividends.
Should you buy stock in Costco Wholesale right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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