Is Costco a Buy at $1,095?

Costco trades at $1,095 and about 52 times earnings. Everybody says it’s expensive, and everybody has been saying that for ten years. Over that stretch it compounded at roughly 21% a year, against about 13% for the S&P 500.

In this week’s Dividend Live, I walk Costco through the full Stock Simplifier flow: the business, the moat, growth, management, and risk. Then we get to the question that matters: when is a high P/E actually worth paying?

Here’s the short version. Costco is a thin-margin business by design. It marks goods up about 14%, and its net margin is around 3%. The membership fee is where the profit lives, and about 92% of members renew. Return on invested capital has climbed from roughly 14% to 21% over the last decade. The balance sheet holds more cash than debt, and operating profit covers interest about 80 times.

The valuation is the hard part. At 52 times trailing earnings, Costco sits above its five-year average of 46.8 and well above its peers. I’d call the moat narrow but stable, the growth about average for a grocer, and the risk of permanent loss very low. Would I buy it at 52 times? Not today. That’s above my risk tolerance. I bought it in the 35-to-40 range. But I also explain why a handful of quality compounders have never looked cheap, and why paying up for them has still worked over long holding periods.

In the Q&A, we cover why Costco has become a safe-haven, anti-AI trade, how owning Costco compares with a consumer staples ETF, and why you don’t have to swing at every pitch.

Full disclosure: I own Costco. This is educational content, not investment advice.

Chapters

0:00 Welcome, and the $30 special dividend
2:23 Costco snapshot: price, yield, and 10-year returns
3:42 Thin margins, strong balance sheet
5:47 How the membership warehouse model works
10:44 Predictability, pricing power, and the $1.50 hot dog
12:39 Revenue, buybacks, and the dividend
13:52 The moat: narrow but stable
17:19 Growth: why I call it average
19:30 Management: a Costco lifer as CEO
21:45 Risk: volatility isn’t risk
23:13 Valuation: 52 times earnings
25:47 Why quality businesses always look expensive
30:00 Would I buy Costco at 52x?
32:20 Q&A: Costco as a safe haven and an anti-AI play
34:42 Costco vs. a consumer staples ETF
37:05 You don’t have to swing at every pitch
39:10 Wrap-up