Is Now a Good Time to Buy Costco Stock?
Key Points
Costco's stock has outperformed the S&P 500 over the long term.
The membership-club retailer continues to execute well.
The company continues to add locations.
- 10 stocks we like better than Costco Wholesale ›
Short-term traders trying to make money by buying and selling stocks face immense challenges. That's because predicting short-term price movements can be difficult. Long-term investors who can analyze a company's fundamentals and valuation well tend to have more success.
Costco Wholesale (NASDAQ: COST) has rewarded this patience, with the share price more than doubling over the last five years, gaining 104.2% through Oct. 27. That handily beat the S&P 500 index's 69% comparable appreciation.
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But that's the past. Will buying Costco's stock right now result in a market-beating performance going forward?
Image source: Getty Images.
Costco's business continues to do well, retaining members, adding new paid ones, and opening new warehouses. In the latest fiscal year (ended Aug. 30), it had almost a 90% renewal rate, in line with its historical average. The company also grew paid members by about 4% to 84.1 million.
With Costco doing so well, it continues to open new warehouses, and it has room for further expansion. It typically adds 20 to 30 locations annually; it added 25 in the last fiscal year, bringing its total to 939.
Management isn't growing the company recklessly, either. Costco is growing the business profitably, with operating income increasing 12.5% year over year to $11.7 billion.
The company's success hasn't been lost on investors, and the stock isn't cheaply valued. At the moment, Costco's shares have a price-to-earnings (P/E) ratio of 48 compared to the 10-year median of 38.
It would certainly be nice if the shares were trading at a lower valuation before buying in. But it's better to pay a rich valuation for a profitably growing company than a lower one for a company with less-than-stellar prospects.
That's why I recommend purchasing Costco stock now and holding it for the long term, so you can benefit as well.
Should you buy stock in Costco Wholesale right now?
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Lawrence Rothman, CFA has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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