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Costco, At What COST?

  • September 13, 2006

Costco Wholesale Corp (COST) has been on my watch list for years now, but every time I look at the stock, I come away with the feeling that it may be a little overpriced and that I should wait for a pull-back before starting a position. The reason I felt the company may be overpriced had to do with the fact that Costco sports a higher Price/Earnings (P/E) and Price/Sales (P/S) ratios when compared to competitors like InsideArbitrage pick Safeway (SWY), Walmart (WMT), Kroger (KR) and BJ’s Wholesale Club (BJ) as you can see from the following table.

The dividend yield at 1.00% is also not impressive when compared to the average dividend yield of 1.6% for the S&P 500. I find it difficult to imagine how Costco could possibly expand its product line given that it sells everything from “institution size” packs of Oroweat bread and Odwalla orange juice to big ticket items like flat panel HDTVs and even cars.

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