How is Costco different from other retailers?

Costco Wholesale significantly overrated

The US wholesaler and retailer Costco has published its business figures for the 1st fiscal quarter. After reviewing the results, we will not make any material changes to our fair value estimate of $ 140 or change our long-term outlook for the company. With regard to the fundamental growth prospects, we remain optimistic and continue to attest to a large competitive advantage.

At the moment, however, the share is well above our fair value estimate. The current level has already priced in significant retail growth and leaves little room for margin of error. With a price / earnings ratio of 30 based on the earnings forecast, the share is currently quoted with a 20% premium on our fair value estimate. That would assume annual sales growth of 7% and an average operating margin of 3.2% over the next ten years.

Despite this soaring rating, Costco remains a company with a huge competitive edge. The range consists of large quantities of items that change quickly. Costo can be run more efficiently thanks to the volume advantages and the cost advantages can be passed on to customers. This strengthens the image as a cost leader, increases customer loyalty and sales and justifies the membership fees. All of this should help to further boost the capital turnover rate and the return on capital employed.

The cost advantages are also noticeable in the past quarter. Like-for-like sales increased 6% (excluding gasoline and currency effects), company growth was 6% in the US, 9% in Canada and 7% in the rest of the world. Customer frequency and average basket increased by 3%, and the number of members also grew by a solid 7%. As in the previous year, Costco's profit margin was 2.9%, which is slightly below our expectations.

We estimate the fair value per Costco share to be 140 US dollars. On December 16, shortly after it started trading on the Nasdaq, the stock was trading at $ 161.50.

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