Author Topic: COST - Costco  (Read 17086 times)

DTEJD1997

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Re: COST - Costco
« Reply #70 on: July 17, 2019, 04:09:04 PM »
Hey all:

COST is certainly a well run company.  Good for workers, good for investors, good for shoppers.  I have been a member there in the past, and liked shopping there.

HOWEVER, at a 35 P/E and 20x EV/EBIDTA where is the future appreciation going to come from?

Are the multiples going to expand?  Go to a 40 P/E maybe?

They are doing about 150BB a year in sales now.  In 10 years will they be doing $300BB a year in sales?

In my area, COST stores are just "silly" in terms of crowds and sales.  It is frequently difficult to find a spot in the parking lot.

My area almost certainly could use another store maybe...but we have a new competitor coming into the market, BJ's wholesale.  They are rebuilding an abandoned K-Mart location and will be about 1 mile from a COST location.  COST probably has little to fear from BJ's, but BJ's will take some sales I imagine...5%, 10%, 20% even?

I have an arrangement where I get Sam's Club membership for free.  A few years ago, Sam's club was a DISTANT 2nd to COST.  COST is still better than Sam's Club....but the difference is much smaller than what it was.  WMT has remodeled most of the local Sam's Club's...they paid particular attention to fresh/refrigerated in store food sections.  For me, it is a close call...might be just marginally better to shop at Sam's for free than paying membership at COST?

COST is a great company, but at these valuation levels, I think a lot has to go right to make money and there is more risk in this thing than most people believe.



bizaro86

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Re: COST - Costco
« Reply #71 on: July 17, 2019, 04:37:58 PM »
I don't disagree with you - great company, lousy valuation. But I do think them doubling sales is relatively possible. I've been to 3 Costco's in my home metro area, 2 on different Hawaiian Islands, 1 in Mexico and 3 in California in the last 2 years. They were all completely packed to the point where additional capacity in the form of new warehouses would almost certainly be warranted. While that is obviously not an unbiased random sample, it does give me confidence that there is room for them to expand even in their current geographies. There have to be some people who don't want to drive and then wait in a huge line every time who would go if there was one closer and/or lines were shorter.

I also think there is lots of white space internationally. They have 100 warehouses in Canada (and could easily add more where I live that would be busy). But they only have 10 in Australia. While the population of Canada is ~55% larger than Australia, Australia's is even more concentrated in the big cities, which is good for Costco. At the same store density by population as Canada they could open another 55 in Australia.
« Last Edit: July 17, 2019, 04:41:28 PM by bizaro86 »

peterHK

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Re: COST - Costco
« Reply #72 on: July 17, 2019, 07:09:12 PM »
They grow same store sales at 4-8% a year. Tack on 24-25 store openings around the world and in the US (they just opened on in Shanghai for instance), and you can get 8%+ CAGR in sales with new members growing at 3% a year and pricing at 2% CAGR on memberships.

You add share buybacks and one can get to 10% EPS growth fairly easily.

The big question is how much do you pay for that?

DTEJD1997

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Re: COST - Costco
« Reply #73 on: July 17, 2019, 07:28:02 PM »
They grow same store sales at 4-8% a year. Tack on 24-25 store openings around the world and in the US (they just opened on in Shanghai for instance), and you can get 8%+ CAGR in sales with new members growing at 3% a year and pricing at 2% CAGR on memberships.

You add share buybacks and one can get to 10% EPS growth fairly easily.

The big question is how much do you pay for that?

I simply do not see how they are going to grow SSS at 4-8% a year in my area.  The stores are simply jammed right now. 

Could they open a new location?  Absolutely.  If they exercised good discretion in where they opened it, I bet it would do well.  HOWEVER, opening a new store in my general area would no doubt draw sales from their already existing stores.  Then you've got BJ's opening brand new locations...you've also got the remodeled Sam's Club stores.  Is it possible that Costco's Detroit area stores could even suffer negative SSS?  Probably not, but certainly not impossible.

I am unsure what the rest of the USA looks like for Costco.  I imagine that they absolutely have SOME room for growth...but it is not like it was 20 or even 10 years ago.

Internationally could indeed be a totally different situation for them, and they might have many years of relatively easy oversees expansion.  However, overseas expansion has many more factors of risk than operating in the USA.  I would also think that totally new, and relatively new international locations will have losses for at least a few years as they have to build infrastructure totally from scratch.

In the end, I think you are right that COST will grow, but I just think it will be riskier & not as easy as it has been in USA.  This is as the valuation metrics are pretty high!


SHDL

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Re: COST - Costco
« Reply #74 on: July 17, 2019, 09:43:15 PM »
They grow same store sales at 4-8% a year. Tack on 24-25 store openings around the world and in the US (they just opened on in Shanghai for instance), and you can get 8%+ CAGR in sales with new members growing at 3% a year and pricing at 2% CAGR on memberships.

You add share buybacks and one can get to 10% EPS growth fairly easily.

The big question is how much do you pay for that?

I simply do not see how they are going to grow SSS at 4-8% a year in my area.  The stores are simply jammed right now. 

Could they open a new location?  Absolutely.  If they exercised good discretion in where they opened it, I bet it would do well.  HOWEVER, opening a new store in my general area would no doubt draw sales from their already existing stores.  Then you've got BJ's opening brand new locations...you've also got the remodeled Sam's Club stores.  Is it possible that Costco's Detroit area stores could even suffer negative SSS?  Probably not, but certainly not impossible.

I am unsure what the rest of the USA looks like for Costco.  I imagine that they absolutely have SOME room for growth...but it is not like it was 20 or even 10 years ago.

Internationally could indeed be a totally different situation for them, and they might have many years of relatively easy oversees expansion.  However, overseas expansion has many more factors of risk than operating in the USA.  I would also think that totally new, and relatively new international locations will have losses for at least a few years as they have to build infrastructure totally from scratch.

In the end, I think you are right that COST will grow, but I just think it will be riskier & not as easy as it has been in USA.  This is as the valuation metrics are pretty high!

Personally my spending at Costco has gone up with my disposable income and family size, not because I visit their stores more often but because I just buy more stuff when I go.  If everyone does that I think SSS can grow at a rate close to GDP ó- or maybe a bit better if the Costco shoppers continue to economically outperform rest of the population ó even if their stores are already quite busy.

The more interesting growth opportunity though is e-commerce.  We shall see how that goes but so far it sounds like they are off to a good start.

I agree that the valuation has gotten quite high.  Itís not impossible to justify given the circumstances, but I think there will be a better entry point somewhere down the road.

Gregmal

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Re: COST - Costco
« Reply #75 on: July 18, 2019, 06:53:57 AM »
Ive admired this for a long time but never owned it for the same reasons many here cite. However to play devils advocate, the concerns about "how can they justify the future valuation" or "where is the growth going to come from" are the same tried and true reasons Ive heard investors write off this and many, many other really great companies and investments. AMZN and ISRG are the first ones to come to mind, but there are plenty of others. Nevertheless these great companies keep finding ways to innovate and print money for shareholders.

Also, there is a certain irony to people citing the above, mainly law of large numbers arguments, while many of those same likely load the boat on BRK....which faces the exact same issue to an even greater extent, but doesn't have the innovation these companies do.

K2SO

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Re: COST - Costco
« Reply #76 on: July 18, 2019, 08:20:11 AM »
I've been waiting for the right valuation to buy this stock for almost 20 years.