Costco: paying up for the membership machine
Costco's renewal rate, traffic and membership fee growth are as good as they have ever been. The problem is the price: the stock trades at a multiple that leaves no room for a single bad quarter. A great business I'm watching, not buying.
Sample research report used to test the layout. Delete before launch.
Thesis
The business is close to perfect: renewal rates above ninety percent, traffic growing every quarter, and a fee increase that flows straight to profit. None of that is in dispute, and the multiple reflects it fully.
Catalysts
- Monthly sales reports, which have beaten expectations for a year.
- The membership fee increase rolling through the full member base.
Risks
- Valuation. The stock has de-rated sharply twice in the past decade with no change in the business.
- Consumer spending on discretionary categories.
What would prove me wrong
The multiple holding through a slowdown. It might; it has before.
Position
None. Watching for a pullback of fifteen percent or more.