Costco’s stock has performed well over the past few years. This has made it one of the largest companies in America. Costco’s market capitalization has increased by 62% in the last decade. The COST share price will come into focus when it releases its next results.
Cost valuation remains a concern
Costco, a huge company, owns stores across the US, Canada and China.
In the last few years, its growth rate has increased despite intense competition, including Walmart, Amazon and Target.
In the last five years, its revenue has increased from $166 billion up to $254 billion. In the same time period, it has also almost doubled its profit, from $4 billion up to $7.3billion.
Costco’s numbers are causing concern that the company is overvalued. Data shows that Costco has a price-to earnings ratio (TTM), which is 55. This is much higher than retail’s median, of 17
If all other factors were constant, you would need 55 years before you broke even if the company was taken private. This is a very high number, considering NVIDIA’s forward P/E of 49.
NVIDIA is experiencing a stronger growth in revenue than Costco. In its most recent quarterly earnings, NVIDIA’s revenue nearly doubled from over $30 billion to almost $35 billion.
Costco has a higher value than Visa which is renowned for its business model. Visa is the provider of technology for credit and debit card systems around the world, resulting in gross margins close to 100%. Mastercard’s multiple is 36, while Visa has a P/E forward ratio of 27.
Costco has a multiple of forward EV/EBITDA of 33. This is also higher than the industry median of 11, which is also very high.
Costco deserves to be valued higher, just like many other large companies. However, the numbers currently show it’s a company that is severely overvalued.
Continue reading: Costco Stock is More Overvalued Than Nvidia: Still a Buy?
Earnings ahead
It is important to note that the fact that Costco’s stock is overvalued does not mean that it is going to crash. In the past, companies that are highly overvalued have performed well as long they generate strong revenues and profits.
Costco reported a 1% increase in revenue to $78.2 Billion. Costco’s net profit increased by 9%, to $2.35 Billion. The company’s growth was a result of adding more employees and adjusting its prices.
Costco had 136.25 million members and 76.2million cardholders at the end of this quarter. Costco’s rate of renewal remained strong at 90.5%.
Earnings are due on Thursday of next week. Analysts anticipate that the company’s revenue will have increased by 7.3%, to $62 billion.
The company’s revenues will increase by 7.4%, to $273 Billion. This is followed by $291 Billion. Costco is viewed positively by most analysts, the optimistic being Evercore, Telsey Tigress and Truist.
Costco Stock Price Analysis
Chart of Cost by TradingView
Weekly chart of COST shares shows a significant uptrend over the last few years. The COST share price remains higher than both the 100-week and 50-week Exponential moving averages (EMA).
Some risky patterns, however, are developing. The rising wedge is an important reversal signal. MACD and Relative strength Index (RSI), have created a divergence pattern that is bearish.
While the short-term view of the stock may be bullish, it is possible that the outlook will change to a negative one in the mid-term. The stock could retreat when it reaches the psychological level of $1,000.
The post Costco Stock Price Forms Risky Patterns: Is the Bubble About to Pop? This post may change as new updates are made
