Warehouse retailer Costco Wholesale (NASDAQ:COST) has some of the lowest margins in the business, because the membership fees it charges shoppers allow the company to earn a tidy profit while still passing on incredible savings to its members.

Costco's low prices haven't just benefited customers: Shares have walloped the market, returning 11,000% over the past two decades. However, with prices near their all-time high, is the ride over for Costco investors? To answer that, we've compiled a premium research report with in-depth analysis on whether Costco is a buy right now, and why. Today, you can get a sneak peek into this report, and see some of the critical risks Costco is facing.

Risks

  • Valuation
    High expectations are built into Costco's stock price, and its valuation can look more like that of a fast-growing tech company than a staid bulk retailer. These high expectations mean that Costco's share price can overreact to bad news like an earnings miss, causing a steep price drop. Investors can protect themselves and take advantage of this by starting to build a position slowly and buying on dips; for instance, when the price-to-forward earnings ratio drops below 20.

  • Market saturation
    With as many as 1 in 6 American and Canadian consumers already Costco members, the company may have already captured the most attractive markets. New store openings in less-advantageous areas could see less enthusiasm, lower sales, and fewer new members and membership renewals. Such headwinds would make it very difficult for Costco to grow into its valuation, and being forced to close underperforming locations could destroy shareholder value.

  • Competition
    Wal-Mart's Sam's Club warehouse concept has the resources behind it to fight Costco over every piece of territory. However, the two companies appeal to very different demographics: The only type of credit card Costco accepts is American Express, for instance, indicating a higher-income customer than Sam's Club shoppers. Similarly, smaller warehouse retailer BJ's Wholesale's acceptance of non-member customers (who pay a small surcharge) indicates a less-exclusive environment that may not be as appealing to the small-business owners, professionals, and other high-income households that are Costco's target clientele.

Fool contributor Daniel Ferry owns shares of Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.