Beast Finance's Core Viewpoint:

(1) Since its listing in 1985, Costco's share price has risen by over 64,000%.

(2) The company has become one of the most overvalued on the US stock market (with a valuation exceeding that of NVIDIA).

(3) Beast Finance's technical analysis of Costco stock: Resistance at $1,000, Support at $800.

Over the past few decades, Costco's (COST) share price has continued to rise, making it one of the best-performing companies on the US stock market.

Since its listing in 1985, Costco's share price has risen by over 64,000%, from $10 at IPO to nearly $1,000 today. This means that an initial investment of $1,000 in the company would now be worth over $90,700, excluding dividends.

Growing Revenue and Strong Profitability

Costco's revenue has been strong over the past few decades, fueled primarily by the continuous expansion of its store count, which has grown from 9 stores in 1985 to over 882 today.

Its annual revenue has increased from over $112 billion in 2014 to over $242 billion in the last fiscal year.

Simultaneously, Costco's profitability has also been robust, with net income growing from over $3.7 billion to over $6.2 billion. This performance has occurred amidst a sustained increase in membership numbers, albeit at a slower pace. Membership has grown from over 58 million to approximately 120 million today.

Achieving such growth amidst fierce global retail competition is impressive. This competition primarily stems from companies like Amazon (AMZN), which boasts over 200 million users in the US and other countries.

Furthermore, Costco faces competition from other players like Walmart (WMT), Target (TGT), and BJ Wholesalers.

Costco Continues to Grow

The latest financial reports indicate that Costco's business continued to perform well in the previous quarter. Comparable store sales in the US grew by 6.2%, while sales in Canada and other international markets grew by 7.7% and 6.6%, respectively.

In the first half of the year, comparable sales increased by 5.3%, and e-commerce performed well, with net sales reaching $58 billion and net income hitting $1.6 billion.

However, the company aims to continue growing, which is why it has increased membership prices. In the first half of the year, Costco raised the annual fee for Executive Membership by $5 to $65 and the fee for Business Membership by $10 to $130, affecting 52 million members, over half of whom are Executive Members. Assuming 26 million are Executive Members, this price increase alone could generate $1.65 billion in revenue for Costco, with Business Membership revenue exceeding $3.3 billion.

Additionally, Costco boasts one of the strongest balance sheets in the industry. It currently has over $5.8 billion in long-term debt and $2.3 billion in operating leases, while cash and short-term investments stand at $14.6 billion.

As a result, Costco's share price has risen consistently due to its reliable dividends and analysts' continually upgraded ratings. The company currently offers a forward dividend yield of 0.51%, a payout ratio of 27%, and a 5-year growth rate of 17.92%, higher than most companies. Moreover, Costco has increased its dividend for 19 consecutive years.

Costco's Valuation

Investors' primary concern regarding Costco is that it is one of the most expensive companies in its industry.

With a market capitalization exceeding $406.5 billion and projected annual revenue of $254 billion to $273 billion this year, Costco's net profit margin stands at 2.8%, translating to annual profits of $7.1 billion to $7.6 billion.

These figures imply a forward P/E ratio of 55 for Costco, significantly higher than the industry average of 20.

In comparison, Walmart has a P/E ratio of 41 and a forward P/E ratio of 33, while NVIDIA, which grows faster and has higher profit margins than Costco, has a forward P/E ratio of only 42.

These numbers suggest that Costco's valuation is significantly overstretched, meaning it needs to continue growing to justify its P/E ratio. Currently trading at $916.75 (as of writing), Costco's share price exceeds analysts' average target price of $896.

Technical Analysis of Costco Stock

The weekly chart shows that Costco's share price has been in a strong uptrend for an extended period. Recently, the stock broke through the $895 resistance level (its highest since July), invalidating a previous double-top pattern.

Currently, Costco's share price remains above all moving averages, and the MACD indicator has moved above the neutral line.

Therefore, from a technical perspective, the bulls have set $1,000 as the new resistance level for Costco's share price in the short term. Beast Finance believes the stock may continue to rise.

However, in the long run, the stock may resume its downtrend. Beast Finance suggests that if it falls, the next support level for Costco's share price would be $800.