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Is Costco Stock a Buy?

By Demitri Kalogeropoulos and Brian Withers – Oct 23, 2021 at 9:45AM

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Don't lose too much sleep waiting for the price to drop.

Costco's (COST 1.51%) stock has a tendency to look expensive compared to its rivals, but the retailer has so many great things going for it that this may not matter. In this video clip from "Beat & Raise," recorded on Sept. 24, contributors Brian Withers and Demitri Kalogeropoulos discuss why starting a small position in the stock may be a smart place to begin.   

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Brian Withers: Yeah, so Bhanu asks, "Is Costco a buy at today's price?" Demitri, what do you think?

Demitri Kalogeropoulos: You know, I love that question. Costco is one of those stocks that I think unfortunately never really gets cheap. I've owned it personally for probably eight or nine years now. It always looks expensive compared to some rivals. It's up 24 percent right now for the year which is a little bit better than the market is 19 percent. Looking at three-years, it's almost doubled in three years and the market's up 52 percent and over that three years, literally, it spent maybe it looks like a week or two underneath below the market's performance. It's not a secret, it's not like you're buying into something that always heard of people are aware of this being a great business, but that being said I still think it's a good buy. They've got so many good things, so many good factors going for them. Such a premium position in the market, I just can't imagine how you know Costco from its position and they've these growth levers that they're going to pull, I mentioned that pricing situation right now which is going to play into their favorite like customers are just bring thrilled by their assortment.

I think the CFO also said today that new customers, so people that just signed up for their first-time are renewing at some of the most strongest rates they've seen, so they're achieving those main business goals. Then Costco tends to raise its annual fees every 5-6 years and we're getting along into that fifth year in Wall Street always goes nuts when that happens because like I said, the fees go directly into the bottom line so it's a complete different earnings increase when they raise that fee because everyone renews anyway. You're not going to, like I said, I wouldn't lose a lot of sleep trying to wait for the price to drop and for it to look cheap. If you're interested in it, maybe start a little small position and just buy-in-thirds. I heard that being that idea of just having that plan by a little bit now buy another third in a month or two and another third established a full position that way maybe you'll get some average into some lower costs, but it's just a good business and I think it's going to pay off overtime I think when you hold it.

Withers: Yeah. They also have an interesting way that they deal with dividends. It almost seems like it's a little bit of the shopping experience where they occasionally have just individual payout that's large and I wanted to show you that chart. I've never seen a chart like this for the dividends. I put the revenue in purple, this is over the last 10 years, and look at the dividend. On average, it creeps up. Actually, if you look over the period of time from where it ended to where it started it was up like 200 percent. But look at this, there's four places where it just had massive dividend payouts and shareholders love that.

Kalogeropoulos: Yeah. I've complained about this a little bit in a few articles over the years, because it defeats the purpose, dividend is what you want to steady source of income that you can count on growing over a period of time which Costco for some reason, doesn't want to go that route, but I think investors can cut it some slack.

Demitri Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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