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It's Hard Not To Like Costco

Mar. 10, 2021 12:45 AM ETCostco Wholesale Corporation (COST)13 Comments
Geoff Considine profile picture
Geoff Considine


  • Costco is trading at around 20% below its high of late 2020.
  • The Wall Street consensus is bullish.
  • The option-implied outlook is neutral with low volatility.
  • The valuation remains quite high, but not enough to overshadow other positives.
  • My final rating is bullish.

Bank of America (BAC) just reiterated its buy rating on Costco (NASDAQ:COST), shortly after the company reported earnings on March 4th. The earnings report was mixed, with a beat on non-GAAP EPS and a miss on GAAP EPS. The stock price dropped in the next trading session in response to the earnings, but has largely returned to its level before the announcement. The market was already jittery about COST before the call, as reflected in the falling price YTD. Since closing at $391.77 on 11/30/2020, COST is down about 20% and closed at $311 on 3/8/2021.

I am a fan of Costco as a shopper but I have avoided the stock mainly on the basis of valuation. Even now, the forward P/E is 31.9, which is comparable to tech giants like Microsoft (MSFT) (forward P/E = 31.4) and Alphabet (GOOG) (GOOGL) (forward P/E = 30.4). While this is high (especially from a historical perspective) for a retail chain, e-commerce is a significant and rapidly growing part of Costco’s business. While only 6% of Costco’s total sales in 2020 were online, the growth rate of Costco’s e-commerce is very high. There is also a good argument that Costco can be expected to improve its margins over time, which has the potential to boost EPS.

Price chart and basic statistics for COST (Source: Seeking Alpha)

Even with the price declines since Thanksgiving of 2020, the stock’s historical total returns over extended periods are in line with, or higher than those of the broader discount store sector. Over the past 3 years, COST’s total annualized return is 21.02% vs. 19.20% for the sector, for example.

Trailing total returns for COST vs. Discount Store sector and U.S. stock market (Source: Morningstar)

Wall Street Analyst Outlook

The outlook for COST from Wall Street analysts is

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I am/we are long COST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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