Shares of Costco Wholesale (COST +0.21%) have been terrific for long-term investors. Over the past five years, the stock is up 110%, beating the S&P 500's 73%. But over the past year, Costco has been roughly flat, while the index is up 19%; valuation has been a factor in that relative performance.
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The business is doing great. Third-quarter sales rose 11.6% year over year, and comparable-store sales were up a healthy 6.6% once you strip out gas prices and currency swings in international markets.
Costco is also still firing on multiple cylinders. E-commerce sales climbed 21% year over year, the company set new fuel-volume records, and it boosted member value by cutting prices on staples like eggs and beef.
NASDAQ: COST
Key Data Points
Valuation is the main factor holding the stock back. Costco traded at a stretched price-to-earnings multiple of 60 about a year ago. Even after that premium compressed, the stock still trades for about 47 times trailing earnings -- above its 10-year average of roughly 40.
At this price, Costco isn't an obvious buy. Investors may be better off waiting for the stock to move closer to its historical valuation, if not lower. Buying now risks owning a great business that still gets rerated to a lower P/E and continues to lag the market.
