WMT - Costco Isn't As Expensive As You Think
2024-05-20 08:43:21 ET
Summary
- Costco is a rock-solid company that will trade at a premium forever, making it a strong hold for investors.
- Costco's international expansion and diverse product offerings, including weight loss programs, provide growth opportunities.
- The company's real estate strategy and low-cost procurement give it a competitive advantage and help sustain long-term growth.
- To grow into its valuation, Costco needs to maintain very impressive growth for many years.
Investment Thesis
Costco ( COST ) has beaten the market and broken DCFs for many years. The company has international growth opportunities, owns most of its land and warehouses, and holds incredible economies of scale advantages that allow its low-margin business to drive incredible returns on invested capital and assets. Costco should be able to continue generating lots of free cash flow well beyond a ten-year model, meaning a valuation multiple or even a traditional DCF aren’t necessarily the right ways to approach analyzing Costco. I don’t think the growth story is up yet, and though I’m not buying the stock right now, but it isn’t anywhere close to selling time for long-term holders, in my opinion. Even at a TTM price-to-earnings multiple of 52x, I think Costco is only marginally overvalued and even has a chance to grow into its current valuation.
Introduction
My investment thesis on Costco is not solely based on financial statement analysis. It takes into account the less apparent factors that are often overlooked in traditional analyses. Relying solely on P/E multiples to assess valuation and investment potential is fundamentally flawed. This is a key area where I believe many analysts who have recommended selling Costco have missed the mark....
Costco Isn't As Expensive As You Think