Costco's Performance is Stable, but Now is not a Good Entry Point

Last Friday, Costco announced its earnings report. The company's stock has been performing well recently, with an increase of 18% from the end of October to now, outperforming the S&P 500's 15%. The question is whether this earnings report can sustain the stock's upward trend.

According to the report, the company's quarterly revenue was $57.8 billion, up 6.2% year-over-year, meeting expectations. Earnings per share were $3.58, higher than expected at $3.45. Total merchandise sales revenue was $56.72 billion, up 6.1% year-over-year, and membership income was $1.082 billion, up 8.2%. Investors are most concerned about same-store sales, which increased by 2% in the US, 6.4% in Canada, and 11.2% internationally. It was surprising to see that Costco's US growth lagged behind other retail data, which may indicate that the impact on middle-class consumption as a whole is more significant.

Regarding membership fee adjustments, the earnings report did not reveal any details. The last time the company raised fees was in 2017, and it's been 6.5 years since then, the longest pause in the company's history. Typically, Costco raises fees every five years. In the previous earnings season, the CFO stated that the issue was not whether the fee would be raised but rather when.

In addition, Costco announced special dividends of $15 per share, representing 2.37% of the current stock price, totaling an estimated $6.7 billion. Investors must become shareholders before December 28th to receive the dividends. This is good news for investors.

Costco's performance is still very stable. The key factor that will affect the stock price in the future is still the pending decision on membership fee increases. If the increase is not as expected, it could cause some volatility in the stock price. For me personally, Costco is undoubtedly a good company, but its current valuation is somewhat overstated, with a forward P/E ratio exceeding 40 times, reaching a historical high for the company. The reason why the valuation is so high may partly be due to investors' pursuit of safety during this period. However, I don't think now is a good time to enter the market.