Is Costco's Stock Too Expensive Now?
Costco Wholesale (NASDAQ: COST) is trading right around $1,000 per share. For many investors, that high a number can induce a bit of sticker shock. That's understandable, but its current price tag isn't necessarily indicative of overvaluation.
The valuation concern is valid, however, as Costco's forward P/E ratio is just under 50, and its trailing P/E is just over 50. That's expensive for the industry, but Costco has built a business unlike other retailers. Costco boasts membership renewal rates above 90%. This creates cash flow predictability and a competitive moat.
Also, because of Costco's size, it can buy products in enormous quantities and pass those savings on to consumers. This is a flywheel that is difficult for competitors to disrupt. Consumer Reports recently completed a study that found Costco's prices are 21.4% lower than rival 's.
Source Fool.com
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