Opinions
Kash Pashootan
Costco Wholesale Corporation
COST-Q
COMMENT
Mar 14, 2017
Stock price when the opinion was issued
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Likes the company, but has never owned the stock. It's always been screened out because of valuation. Trading today at 53x PE on this year's earnings. Great business model, and the street recognizes that.
You have to look at these companies in terms of what can go wrong. If we go into a sustained, negative economic period, there's going to be a lot of hurt on a company like this.
Sank 2.9% today one earnings. However, revenue, EPS and comp. sales beat. Are seeing more younger members. To combat tariffs, are altering their supply chain to hold down prices. It's absurd that the street is punishing them for disappointing renewal rates of online subscribers--this is an excuse to sell. Charlie Munger was a massive shareholder of COST. Over the last 20 years, has returned 19% annually--one of the best stocks ever--vs. 11% by the S&P. With this pullback, it is cheap.
One of the leaders in the low-cost space. Their margins run at about half of what their competitors do. That model only works if there is high turnover of your products. They have been successful in picking the right products, pricing them and moving them very quickly. The risk is, if you do get into a slowdown, there really isn’t any room to cut prices. They generate about 25% of revenue from membership fees, and with so many members, it is difficult to grow revenue. Membership fees are going up, which is a way to have that side of the business stay strong. Trading at about 29X Price to Earnings. For him, the dividend trajectory growth is not there, and trades too rich for him. Dividend yield of 1.1%.