When investing, it's always good to be plunking your hard-earned dollars into companies and industries that you understand. A biotech company may sound exciting, but if you aren't very familiar with that industry, you may not appreciate the risks it faces. One of the most understandable industries is the retail sector, and one of the most solid retailers is Costco (COST +1.13%).
Image source: Getty Images.
If you own shares, as I do, I think you'll do well to hang on to them for the coming decade -- or longer. If you're not currently a shareholder, you might want to hold off on buying right now, though, as the shares seem a bit overvalued, with a recent forward-looking price-to-earnings (P/E) ratio of 47, well above the stock's five-year average of 41.
NASDAQ: COST
Key Data Points
Here's why the stock is worth owning -- and holding:
- Its business model is a thing of beauty, supported in large part by its membership fees, which generate more than $5 billion annually.
- Management knows how to grow the company effectively. Indeed, the stock has averaged annual gains of 23% over the past five years and 20% over the past 15 years. And in its last reported quarter, sales grew by 8%, with its e-commerce revenue growing by more than 20%.
- It treats its stakeholders well -- giving workers above-average pay and benefits, giving shoppers modest markups on products, and giving shareholders...well, those hefty returns. (Costco has also issued large occasional special dividends, on top of its regular dividend, which recently gave a dividend yield of 0.5%.)
- It has plenty of growth potential. Its locations number only 923 globally and 633 in the U.S., as of January. And it's aiming to boost growth in part by tempting its members to upgrade to "executive" memberships with perks such as earlier entry.
So hold on to your shares with confidence, and if you're waiting to buy, know that there are other terrific growth stocks out there.
