Costco Wholesale Corporation (COST)

Has been able to maintain its PE multiple over time. One of the few. They want you to look around within the store. This increases the ticket items. You keep adding to the basket. The number of items are in a short list, but they are the go to names. They sell at a discount and members respect this. It is rich, but deserves to be relative to other providers. They have the gas and auto add-on businesses. He would wait for it to cool off a bit to pick it up.

One of the few things in retail that does not have to compete against Wal-Mart. It is at 24 times earnings, but the visibility of forward earnings is orders of magnitude higher.

Whenever we have an experience with something we tend to use that to judge the future. You may not want to pay double what you paid for Costco last time, but if their earnings have doubled then it may be warranted. Costco will respond well to earnings. It is selling to $90k income customers average and their memberships are a recurring revenue. It is trading at about 180% of the S&P multiple so if things go bad, high multiple stocks have a lot of air under them.

He is comfortable owning it. Doing the best of the all the big box retainers. Cater to a more affluent customer base. Profit margins are picking up. They are narrow in what they offer so they are highly efficient in their operations.

This is a company that he loves. Average mark-up is about 14%. Treats employees really well and they stay for long periods of time. Longer-term, this bodes really well when you’ve got the old employees and treat them fairly. Stock price has moved up quite a bit so it is not his kind of a stock.

How do you classify this, consumer staple or consumer discretionary? Also, why has it gained a few percentage points more in total return than Wal-Mart (WMT-N) given that it has a much, much higher P/E ratio? The difference between these 2 is that Wal-Mart tends to be at the lower and of the demographic scale. Also, Costco is a membership driven situation where Wal-Mart is not. Also, there are differences in the types of companies they are. Well managed company and has a good model but a little too expensive for him.

This is a great model. They basically use the membership fees as 100% of their profitability and they have 90% renewal rate. The only thing he worries about is its valuation. Trading at 27X current earnings and 25X forward earnings. Too rich for him. With the growth rates they have, he would want to get in at under 20X earnings.

Still growing. This is the preferred one over a Wal-Mart because they are doing business the right way. Likes their business model where they are trying to support growth in the economy. He would prefer it around $105-$110 range. If you are a first-time buyer, buy one half position today and then watch to see what happens in the market. Trading at roughly 20X earnings.

Wal-Mart or Cosco? Cosco turns over inventory 12 times per year. Prefers over Wal-Mart.

Great stock. Up 21% in the last 12 months. A little expensive at 25X earnings but you are getting pretty decent growth at 13%. Membership continues to move well and the quality of product is strong and their expansion continues.

You are paying for growth, so the question is, can they continue the growth. Costco format sits really well in North America but he is not sure that Europe Costco works. They are not getting their growth from emerging markets. As a value investor, this would not be his choice.

Pushing up against the upper levels of its historical multiple but it is a great story and a great franchise. Same-store sales are growing well. Demographically they attract exactly the right type of customer. Have been able to raise their fees and have a renewable rate of over 90%. Fees are straight profit.

(Market Call Minute.) Great business. Huge free cash flow generator. Would look to buy this one at the right price.

What differentiates it is the annual fees they change. That is the financial strength of this company. They are a very low margin business. They play the volume game and then overlay the fees from their members and that made them very profitable. They are well managed and he admires them. He thinks it is a good model.

Multiple is a bit high. He is looking for an entry point. Has been a tremendous performer. Special dividend made stock perform well in last week or so. Don’t chase it here but get it at 20x earnings.