How Much Would $1,000 Invested in Costco 10 Years Ago Be Worth Today?
Key Points
Costco rode steady growth in warehouses and paid memberships to steady financial gains.
But the stock outran the increase in the company's actual earnings.
It's questionable if international expansion and e-commerce will be enough to repeat the stock's past performance.
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If you had invested $1,000 in Costco Wholesale (NASDAQ: COST) 10 years ago, you would now have about $7,600, with dividends reinvested. That would have doubled the $3,700 you would have earned from the S&P 500.
Costco delivered that performance with steady growth in its business. Its global warehouse footprint rose from 686 then to 924 locations today. Paid memberships increased from 44.6 million to 82.1 million in the most recent quarter.
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However, a big chunk of the stock's gain came from investors paying a higher premium for Costco's earnings. Since fiscal 2015 (ended August), earnings per share are up 258% cumulatively, or about 13% annualized -- yet the stock's total return was 734%.
Over time, stocks can't outrun the underlying business indefinitely. If earnings growth doesn't accelerate, the valuation has less room to expand -- and could even contract. The stock currently trades at a price-to-earnings (P/E) multiple of 51. But over the past 20 years, the average P/E was about 31, so there's real risk that a return to that range could limit the stock's upside, even if the company keeps executing well.
Investors may be counting on e-commerce and international growth to drive the next leg higher, but e-commerce hasn't meaningfully moved the needle yet. Analysts expect 12% earnings growth this year and 9.6% annually after that. Meanwhile, management is targeting just 28 net new warehouses in fiscal 2026.
Costco remains a terrific business, but after a decade of outsize returns, investors should temper expectations. They may see more modest gains over the next 10 years, but not by a multiple of 7.
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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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