We've been asking ourselves recently if the market has placed a fair valuation on Costco Wholesale. Let's dive into some of the fundamental values of this Large-Cap Consumer Discretionary company to determine if there might be an opportunity here for value-minded investors.
Costco Wholesale Has Elevated P/B and P/E Ratios:
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. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 20.93 and an average price to book (P/B) ratio of 2.93. In contrast, Costco Wholesale has a trailing 12 month P/E ratio of 54.3 and a P/B ratio of 15.66.
Costco Wholesale has moved 18.8% over the last year compared to 20.3% for the S&P 500 — a difference of -1.5%. Costco Wholesale has a 52 week high of $1078.23 and a 52 week low of $793.0.
Growing Revenues but Not Enough Current Assets to Cover Current Liabilities:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $152,703 | $166,761 | $195,929 | $226,954 | $242,290 | $254,453 |
| Operating Margins | 3% | 3% | 3% | 3% | 3% | 4% |
| Net Margins | 2% | 2% | 3% | 3% | 3% | 3% |
| Net Income (M) | $3,659 | $4,002 | $5,007 | $5,844 | $6,292 | $7,367 |
| Net Interest Expense (M) | $150 | $160 | $171 | $158 | $160 | $169 |
| Depreciation & Amort. (M) | $1,492 | $1,645 | $2,601 | $2,768 | $2,524 | $3,252 |
| Diluted Shares (M) | 444 | 444 | 445 | 445 | 444 | 445 |
| Earnings Per Share | $8.26 | $9.02 | $11.27 | $13.14 | $14.16 | $16.56 |
| EPS Growth | n/a | 9.2% | 24.94% | 16.59% | 7.76% | 16.95% |
| Avg. Price | $247.91 | $315.32 | $414.98 | $510.74 | $602.92 | $952.52 |
| P/E Ratio | 29.8 | 34.84 | 36.72 | 38.78 | 42.52 | 57.42 |
| Free Cash Flow (M) | $5,316 | $8,772 | $6,589 | $5,382 | $8,298 | $9,940 |
| CAPEX (M) | $2,998 | $2,810 | $5,054 | $5,669 | $5,380 | $6,781 |
| EV / EBITDA | 17.97 | 19.88 | 19.85 | 21.62 | 24.61 | 33.73 |
| Total Debt (M) | $11,957 | $15,186 | $14,196 | $13,102 | $11,835 | $11,691 |
| Net Debt / EBITDA | 0.47 | 0.23 | 0.16 | 0.21 | -0.49 | 0.06 |
| Current Ratio | 1.01 | 0.98 | 1.02 | 1.03 | 1.09 | 0.98 |
Costco Wholesale has 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 not enough current assets to cover current liabilities because its current ratio is 0.98. Finally, we note that Costco Wholesale has weak operating margins with a positive growth rate.
