Defying gravity, Costco's stock price has continued soaring higher since my previous report on the retail giant.
Unfortunately, the rally is driven by trading multiple expansion, and not business performance.
With Costco's 5-year expected CAGR return deteriorating from -0.5% to -3.2%, I continue to view Costco stock as dead money.
Introduction
In my previous report, I highlighted Costco Wholesale Corporation 's ( COST ) exorbitant valuation as a sign of irrational exuberance in the financial markets:
Costco is trading well above its historical median P/E ratios, and we are getting pretty close to the 1999 peak valuation for COST stock. While we may or may not be in an artificial intelligence bubble, Costco certainly appears to be bubblicious.
YCharts
Reverse DCF exercise
Based on its current stock price of ~$732 per share, Mr. Market is currently pricing in a 5-year CAGR revenue growth rate of ~23% into Costco's stock! Given Costco's mid-single-digit growth rates, the market pricing in ~5x faster growth into COST stock for the next five years is simply ridiculous. Yes, Costco is a serial growth compounder; however, such pricing is a tell-tale sign of irrational exuberance in the stock market.
In QQQ: Prepare for Turbulence , I highlighted the role of abundant liquidity in the ongoing melt-up in financial markets. If liquidity dries up, Costco's stock could struggle big time, as investor expectations built into the stock are completely out of touch with business reality. Costco is a mature (slow-growing) retailer priced for hypergrowth.
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2024-07-20 05:53:00 ET Costco Wholesale 's (NASDAQ: COST) stock price is up roughly 203% over the last five years, a result that puts this retailer on par with some of the most prominent names in tech. That's especially impressive considering that direct retail rivals like Walmart...
2024-07-20 04:30:00 ET Costco (NASDAQ: COST) just answered investors' biggest question. With the warehouse giant's last fee increase in 2017, investors have been wondering when the next one would happen. After all, the company has traditionally hiked fees once every five years. ...
2024-07-18 04:30:00 ET Costco Wholesale (NASDAQ: COST) is one of the more expensive retail stocks you can buy. It trades at a price-to-earnings multiple north of 50 and its market cap is $370 billion. In just five years, the shares have soared by 200%. While Costco has a great busin...
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