Technically, beating the market only requires that your stock do better than the average (as represented by the S&P 500). So by that measure, Costco Wholesale has beaten the market so far this year by only falling 18.5%, compared to the market's 19.3% decline. Costco has been a long-term market outperformer (up 148% over five years compared to the S&P's 43% gain), which leaves many investors wondering if it can finish ahead this year and do it again in 2023.
While I remain a long-term investor with confidence in Costco, there could be some potential issues with the company and the stock that might lead to underperformance next year. Let me explain.
Business is good, but there are warning signs
One of the primary reasons the bulk warehouse giant manages to outperform the market so regularly is that the warehouse club retailer does so well at retaining its members. Its membership renewal rate is 92.5% in the U.S. and Canada. With that level of predictability, it's easier to grow the company responsibly and manage expenses.
Costco also reported decent sales growth for the first quarter of fiscal 2023 (ended Nov. 20). The company grew US; revenue by 9.3% year over year, or 6.5% once higher gas price revenue was stripped out. Globally, Costco was weaker, with revenue up a non-adjusted 6.6% year over year.
Costco's (P/E) ratio is substantially higher than some of its retail peers.
[link] [comments] https://www.reddit.com/r/stocks/comments/12gr0zy/is_costco_over_valued/
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