In this segment of Market Foolery, host Chris Hill and Million Dollar Portfolio's Jason Moser talk about the investment thesis around Costco (COST 0.69%), one of the small group of retailers that has been fairly Amazon-proof (AMZN -0.91%) -- so far. Costco's comps were up 6% last month, yet its shares are down about 15% since the e-commerce giant announced it was buying upscale grocer Whole Foods Market (WFM) as the market absorbs just how game-changing that might be. Looking ahead, says Moser, the burden of proof is on the Costco bulls, but he doesn't see it having the same premium value it once did.

A full transcript follows the video.

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This video was recorded on July 10, 2017.

Chris Hill: Shares of Costco down a little bit today. Their same-store sales in June were up 6%. We were talking earlier this morning -- that's a good number for a retailer of that size. It hasn't really impressed investors, and I think you can look at the point where Amazon announced they were buying Whole Foods and draw a straight line from that point in time to where Costco shares are today. It's down about a little more than 15%, just in the past few weeks.

Jason Moser: I think with Costco, the burden of proof with Costco is on the bull to explain why they think this is still a 30-multiple stock. This is not a bad business by any means. I think Costco is a good business, and it's one that we owned in Million Dollar Portfolio for a time. And we sold it back in May of last year, so it's been around maybe a year since we sold it, and it was in that $165 range, and the concern was just that. We thought, this is a situation where the retail space is changing very quickly. Obviously, e-commerce is becoming more meaningful. So looking forward the next decade, how attractive a proposition is that Costco membership, that Costco experience? And we felt like that just wasn't really the direction that shoppers were headed, for the most part.

And I think what we're seeing is, generally, a repricing on Costco shares. I don't think it's going to be a stock that commands that premium multiple that it once did. And I think it garnered that multiple because of a reliable membership model, very customer-centric management. And I think those qualities still exist today.

But you get to a point where you're big enough to where it becomes more and more difficult to really stoke that growth. It's not like Costco is going to be able to keep on opening up stores left and right. We saw the same thing happen with Wal-Mart. We saw the same thing happened with Whole Foods. The Whole Foods-Amazon deal, that was probably the best-case scenario for Whole Foods investors right there.

It's not to say that Costco is a bad business at all. It's just that I think, going forward, the market is going to look at this stock from a little bit of a different perspective on the valuation side. If you look at the last three years, they've grown earnings at less than 10% annualized. The last five years is just at 10% annualized. I don't know why that stock deserves that 30 multiple. I don't think it's going to get it. So I think what we're seeing is the market repricing it a little bit. I think there are some areas where they need to improve, also.

I was just looking at some of these numbers here recently. Since 2012, they spent almost $2.5 billion on share repurchases. And yet during that same stretch of time, the share count is actually up. For a business like this, that is sacrilege. That cannot happen. You cannot be doing that. I think the special dividend that they just paid out in May, I think that was an implicit admission on management's part. They realized the headwinds on the capital-gains side for the stock, they know the challenges they face, and I think they wanted to reward shareholders in another fashion. And I think that was a fine offer there.

But when you look at it from an investment perspective, it's a different business today. It's a much bigger business than it was 10 years ago. And I think shopping behavior is going to be far different in these coming 10 years than it was before. And I think that's going to present some challenges to Costco.

Hill: And when you think about growth opportunities for any retailer, or restaurant for that matter, when you think about what is their physical presence, and what is their track record in terms of opening new locations? I've talked about this before with Chipotle, with how, for lack of a better term, how slow they are to open new locations. But you can flip that around and say they're not slow; they're methodical. Costco is the same way. Look at their history. They have grown steadily over time. But the pathway to growth for a business as mature as Costco is never going to be, "Gosh, if they could just open 60 new locations." No, that's not how this business has been run to this point, and you wouldn't want them to.

Moser: No. I think that would be a waste of capital. I think management is smart enough to know that, too. These guys are very smart. They know what's going on in the space, and they see the direction the consumer is headed. I think they're trying to figure out new ways to perhaps be a part of that. And I think there's a great opportunity for Costco to ink some new partnerships, new relationships with other players in the space. Maybe it's Amazon. I think they're doing neat things with that goes in there. uses Costco inventory to help fulfill their orders, and that's an online membership model, but you're not having to pay a membership fee. You go warehouse shopping without having to pay that fee.

So I think, generally speaking, there's enough value in the Costco membership where they probably keep that current base renewing at a healthy rate. I don't know how attractive that is, membership, for younger generations of shoppers coming online today.

I also thought, it was interesting to see this, knowing the U.S. makes up the gist of Costco sales, and it's a lot of it -- I didn't realize that California actually comprised 31% of their U.S. sales in 2016. This company is very dependent on California. It's kind of an interesting little factoid there. So any slowdown in California's economy obviously could play out on them as well.

Hill: You mentioned the management. Craig Jelinek, who's the CEO, I think deserves credit for the job he has done in the wake of Jim Sinegal, one of the truly great CEOs of the last 40 years, leaving enormous shoes to fill, and Jelinek and his team are doing a good job.

Moser: Yeah, that's a tough act to follow. And when you're following someone like Jim Sinegal, who set such a great standard, he has such a wonderful reputation and he left that business in great hands. And I think Craig Jelinek has done a very good job. I think it's a far more competitive situation today and looking forward, perhaps, than maybe he even anticipated.

But I think, again, it's not to say it's a bad business. I think you have to look at it from a sheer numbers perspective. Analyst estimates out there have, by 2021, they're seeing $8.92 per share in earnings. Now, stick a 20 multiple on that, and that gets you to about $180 a share. And that's up a little bit from today's $150 and change. Obviously, a 30 multiple takes that stock price into the $220 range. Again, is that fair to assume, that it's going to get a 30 multiple? I think if you look at this company's history, multiples are a bit high right now. I don't think they're going to stay at that lofty level for much longer.