Costco Wholesale (COST +1.23%) has been a rewarding investment for investors. It would have made early investors millionaires, but even if you had bought the stock in 2015, you would still be outperforming the S&P 500.
A $1,000 investment in Costco stock 10 years ago would be worth about $6,400 today, assuming you bought more shares with the dividend. This beats the $4,000 you would have earned investing in an S&P 500 index fund.
But what about an investor buying shares today? Here's what an investor can reasonably expect to earn over the next 10 years.
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Is Costco stock a buy?
Costco has been steadily growing its member base for years, and it currently has 146 million cardholders. It may have a long runway for continued growth, particularly as it expands its store presence in the U.S. and internationally.
NASDAQ: COST
Key Data Points
However, investors should be aware that much of the stock's return over the last 10 years was due to investors paying a higher multiple for the company's earnings per share. Costco's price-to-earnings ratio has increased by more than 50% since 2015, and is currently trading at 46 times its trailing-12-month earnings.
The stock's valuation is currently high, which may limit upside over the next few years. Costco is growing its earnings at approximately 10% year over year, and the consensus analyst estimate projects long-term earnings growth of 9%. If the stock is still trading at 46 times earnings, this would turn a $1,000 investment today into approximately $2,600 in 10 years, excluding dividends.
