The Historical and Forward-looking P/E Ratio of Costco
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In 2000, $Costco (COST.US)$ surged to a forward P/E ratio of 46x, at a time when the Kirkland brand had only been launched for five years, and international expansion was still a big question mark. Later, Costco's growth remained strong, taking 10 years (yes, just ten years) to digest its valuation. In 2003, the stock price halved and the P/E ratio dropped below 20x. Today, with Costco's forward P/E at 50x and a market value of $400 billion, the market seems to believe that Costco's current growth potential and prospects are far better than in 2000.
As someone without a broad perspective, I prefer a forward P/E of 7x. Since going public, the annualized return has been 25%, without making bad capital decisions, reducing losses in overseas operations, and maintaining growth far exceeding Costco's high singles. This e-commerce company, with cash on hand equal to 40% of its market value, has not misappropriated assets from small shareholders, despite appearing a bit masochistic.
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