Is it Too Late to Invest in Costco After a 29% Gain in the Past Year?

Core Insights - Costco Wholesale Corporation (COST) has experienced a significant stock price increase of 28.7% over the past year, outperforming the industry and the S&P 500 index [1][2] - The company's strong performance is attributed to consistent same-store sales growth, robust membership renewals, and strength in high-frequency consumer categories [2][7] Membership and Growth Drivers - Costco's membership-based business model is a key growth driver, with a high renewal rate of 93% in the U.S. and Canada, and 90.5% globally [8] - The company reported 78.4 million paid household members, a 6.8% increase year-over-year, with executive memberships growing by 9.1% to 36.9 million, accounting for 47.1% of all paid members [9] - Membership fee income rose by 7.4% year-over-year, with a recent fee increase contributing approximately 3% to this income [9] E-commerce and Expansion - E-commerce sales increased by 20.9%, or 22.2% when adjusted for foreign exchange, reflecting Costco's successful digital transformation [10] - The company plans to open 28 new locations, including 25 new warehouses and three relocations, to further expand its physical footprint [11] Financial Position and Investments - Costco ended the second quarter with cash and cash equivalents of $13,158 million, indicating strong liquidity [12] - The company allocated $1.14 billion to capital expenditures in the second quarter and has a $5 billion expenditure plan for fiscal 2025, highlighting its commitment to long-term growth [12] Competitive Landscape - Costco's sales performance occurs in a competitive retail environment, with rivals like Dollar General and Target enhancing their e-commerce capabilities [13] - Monitoring margins is crucial due to potential concerns related to selling, general, and administrative expenses, as well as foreign exchange volatility [14] Valuation and Analyst Estimates - Costco's forward 12-month price-to-earnings ratio is 48.20, significantly higher than the industry's 29.95 and the S&P 500's 18.58, raising questions about the justification of its premium valuation [15] - Analysts have adjusted their estimates, with the current fiscal year estimate decreasing by 9 cents to $17.94, while the next fiscal year estimate increased by 4 cents to $19.73, indicating expected growth rates of 11.4% and 10%, respectively [17]