Home Business News Costco: The steady increaser of earnings is getting overpriced

Costco: The steady increaser of earnings is getting overpriced

11th Jul 24 9:56 am

Costco, the membership-based bulk retailer, has one of the steadiest track records for increasing earnings in the last decade.

Earnings per share—how much the company makes divided by the number of shares outstanding—have increased every year since 2010.

Cory Mitchell, an analyst with Tradequotex.com commented on Costco “It is a juggernaut. The company has increased earnings steadily year after year, and shareholders have been rewarded for that.

“Over the last decade, an investor in Costco made 3.5x as much as someone invested in the S&P 500. Industry analysts are still projecting Costco will be able to increase yearly earnings at a higher rate than most S&P 500 companies over the next five years.

It’s a solid company, yet right now the stock is near one of its highest P/E levels ever. It is overpriced.”

The average yearly EPS again is 13.7% over the last decade. For comparison, the median EPS yearly growth rate for S&P 500 stocks is 8.6% over the last 10 years. Put differently, Costco has grown, on average, 59% more per year than a typical S&P 500 stock.

Costco’s strong earnings growth has contributed to strong stock price performance. The stock has an annualized return versus the S&P 500 of 12%. That means COST has beaten the S&P 500 returns by 12% per year over the last decade. The S&P 500 has 13% annualized returns over the last decade. Costco has returned 25% annualized or a total return of 831%, including dividends, over the last decade.

The following chart shows COST versus the SPDR S&P 500 ETF (SPY) over the last five years.

According to StockRover, here’s how earnings have increased in each year relative to the prior year.

  • 2023: +10.9%
  • 2022: +13.8%
  • 2021: +19.4%
  • 2020: +15.5%
  • 2019: +14.4%
  • 2018: +17.2%
  • 2017: +14.8%
  • 2016: +2.6%
  • 2015: +11%
  • 2014: +3.7%

The last time Costco had a year where earnings dropped was 2009 when the financial crisis was underway. The company was still profitable, but earnings were lower than the year prior.

It is a solid company. The only red flag for potential Costco investors currently may be the price of the shares. They are trading at a very high valuation. The Price/Earnings or P/E is 55 and was recently as high as 55.6 which is the highest reading in more than a decade.

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