Costco is too expensive to compound capital
The guest argued that despite Costco being one of the best-run businesses in the world, investors are unlikely to make meaningful returns buying or owning the stock at its current premium valuation.
The argument
The guest noted that Costco traded near 60x earnings a year ago and remains around 50x. He argued that even for elite businesses, price ultimately dictates future returns, making the current entry point unattractive.
The thesis, stress-tested
✓ What validates it
- ✓Costco's forward P/E ratio compressing back toward historical averages
- ✓Slowing membership renewal rates or same-store sales growth
▸ Risks discussed
- ▸Costco's membership model and global expansion continuing to justify a premium multiple indefinitely
- ▸Strong earnings growth offsetting multiple compression
Hear it yourself
"If you're in a recession and earnings drop to nothing like they did in 'eight zero nine, the market can trade at 40 or 50 or 60 times or can trade at an infinite multiple if you have losses, which you had for a couple of quarters."
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