Analyzing Costco Wholesale's Stock Performance

Now trading at a price of $885.67, Costco Wholesale has moved 2.7% so far today.

Costco Wholesale returned gains of 68.1% last year, with its stock price reaching a high of $886.94 and a low of $525.06. Over the same period, the stock outperformed the S&P 500 index by 41.8%. More recently, the company's 50-day average price was $808.64. Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. Based in Issaquah, WA, the Large-Cap Consumer Discretionary company has 316,000 full time employees. Costco Wholesale has offered a 0.5% dividend yield over the last 12 months.

Strong Revenue Growth but an Average Current Ratio:

2018 2019 2020 2021 2022 2023
Revenue (M) $141,576 $152,703 $166,761 $195,929 $226,954 $242,290
Operating Margins 3% 3% 3% 3% 3% 3%
Net Margins 2% 2% 2% 3% 3% 3%
Net Income (M) $3,134 $3,659 $4,002 $5,007 $5,844 $6,292
Net Interest Expense (M) $159 $150 $160 $171 $158 $160
Depreciation & Amort. (M) $1,437 $1,492 $1,645 $2,601 $2,768 $2,524
Diluted Shares (M) 443 444 444 445 445 444
Earnings Per Share $7.09 $8.26 $9.02 $11.27 $13.14 $14.16
EPS Growth n/a 16.5% 9.2% 24.94% 16.59% 7.76%
Avg. Price $195.38 $247.91 $315.32 $414.98 $510.74 $885.67
P/E Ratio 27.33 29.8 34.84 36.72 38.78 62.46
Free Cash Flow (M) $4,920 $5,316 $8,772 $6,589 $5,382 $8,298
CAPEX (M) $2,969 $2,998 $2,810 $5,054 $5,669 $5,380
EV / EBITDA 15.52 17.97 19.88 19.85 21.62 36.27
Total Debt (M) $13,001 $11,957 $15,186 $14,196 $13,102 $10,754
Net Debt / EBITDA 1.05 0.47 0.23 0.16 0.21 -0.59
Current Ratio 1.02 1.01 0.98 1.02 1.03 1.09

Costco Wholesale has rapidly growing revenues and increasing reinvestment in the business and generally positive cash flows. Additionally, the company's financial statements display a strong EPS growth trend and healthy leverage levels. However, the firm has weak operating margins with a stable trend. Finally, we note that Costco Wholesale has just enough current assets to cover current liabilities, as shown by its current ratio of 1.09.

The Market May Be Overvaluing Costco Wholesale's Earnings and Assets:

Costco Wholesale has a trailing twelve month P/E ratio of 50.2, compared to an average of 22.06 for the Consumer Discretionary sector. Based on its EPS guidance of $17.67, the company has a forward P/E ratio of 45.8. The 13.9% compound average growth rate of Costco Wholesale's historical and projected earnings per share yields a PEG ratio of 3.6. This suggests that these shares are overvalued. Furthermore, Costco Wholesale is likely overvalued compared to the book value of its equity, since its P/B ratio of 18.04 is higher than the sector average of 3.18. The company's shares are currently trading 546.9% below their Graham number. Overall, Costco Wholesale's lofty valuation in terms of earnings and assets is to some extent attenuated by its strong cash flow trend and reasonable levels of debt.

There's an Analyst Consensus of Little Upside Potential for Costco Wholesale:

The 29 analysts following Costco Wholesale have set target prices ranging from $675.0 to $975.0 per share, for an average of $847.09 with a buy rating. The company is trading 4.6% away from its average target price, indicating that there is an analyst consensus of little upside potential.

Costco Wholesale has a very low short interest because 1.5% of the company's shares are sold short. Institutions own 71.8% of the company's shares, and the insider ownership rate stands at 0.19%, suggesting a small amount of insider investors. The largest shareholder is Vanguard Group Inc, whose 9% stake in the company is worth $36,165,332,945.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

IN FOCUS