Is it too late to buy Costco stock?

Over the years, warehouse club retailers haveCostco Wholesalefirms(Costco) Wholesale(math.) genus(NASDAQ resonance stock code: COST)It's been very investor-friendly. Last year, the stock rose 52%, more than doubled in three years, and soared 7,12% in ten years, all on the premise of dividend reinvestment. Over most time frames, Costco's returns have lagged far behind those ofStandard & Poor's 500Dividend Adjustment Gain on the Index:

But all good things come to an end, don't they? Is Costco running out of rocket fuel, or does the stock still look like a good investment after all these rock-bottom gains?

Let's take a look.

Costco's Premium Label

First of all, Costco's stock gives many investors the impression that it is expensive. The company's stock has a price-earnings ratio of 47 times and free cash flow of 52 times. This can affect trading in some cases. After all, most retail stocks attract a certain type of value investor. The industry almost demands low valuations.Tajikistan (Target) (NYSE:TGT)(math.) andKerosene (Kroger) (NYSE:KR)) is a classic example of value investing in retail. Even the mightyWal-Mart (NYSE: WMT)The Government's proposal is also beyond the acceptability of the average retail investor:

Data collected at Finviz.com on 4/1/24.

Dividends make Costco even sweeter

A generous dividend policy sets Costco apart from many of its peers. These dividend payouts have resulted in significant gains for long-term shareholders. If the dividends were not reinvested, the 10-year 7,12% return would have shrunk to 5,46%, and the compound annualized return would have fallen from 23.3% to 20.5%.

As a reminder, none of the other retailers in the table above come close to Costco's non-dividend payout ratio, with or without dividend growth. Nevertheless, dividend payouts remain an important reason why long-term investors love Costco stock.

The Secret to Costco's Success

Costco is fundamentally different from its retail counterparts in several important ways:

• Membership is a model:Costco's model relies on membership fees, which gives them the leeway to sell their products at the lowest possible price and still turn a profit.

• Batch packaging is the way to go:A large and limited selection is the key to Costco's low prices and high-performance operations.

• Treasure hunt atmosphere:The constantly rotating assortment gives shoppers a sense of excitement and discovery.

• Kirkland Signature is the star product:Their popular private label brands offer quality products at competitive prices, increasing customer loyalty.

• Happy employees make loyal customers:Costco's reputation for treating its employees well also promotes active shopping.

These key qualities create a unique customer experience based on unparalleled value. This approach has also improved operational efficiency, making Costco a powerful force in retailing.

Is it too late to buy Costco stock?

I don't think Costco's competitive advantage will disappear in the foreseeable future. The secret to the giant retailer's success is its corporate culture, and that's not going to change easily.

The premium on Costco's stock has, therefore, been obtained by hard work, and I expect that in the long run the multiplier based on profits will remain reasonably high.

There will almost certainly be ups and downs along the way. After all, these ratios are currently soaring well above their one-year averages. Until Costco's high share price takes a breather, price-sensitive investors would be better off buying other stocks.

On the other hand, some investors may prefer to enter the market immediately and perhaps buy some lower-priced stocks later. For example, it's easy for me to write glowing reviews of incredible stocks and then forget all about them the next time I have investable capital. If I don't catch my good ideas as soon as The Idiot's disclosure rules allow, I'll have a dozen other good stocks to consider the next time I invest. I'm human, you know.

So, even though Costco's valuation is frighteningly high, I would seriously consider buying a few Costco stocks this week. Time in the market is always better than time out of the market, and Costco has a stubborn tendency to come back from price drops with a vengeance.

Should you invest $1,000 in Costco Wholesale right now?

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Is It Too Late to Buy Costco Stock? Originally Posted by The Motley Fool