Costco finished their fiscal year with outstanding sales results. I have long been a big fan of their business model and it is great to see Costco shifting into high gear.
The best time to own a company is before their success is widely accepted. Once a company’s achievements are widely accepted, the stock price will usually reflect a premium valuation. In other words, the security is not “on sale”, but at full price. As a value investor, I always believe in buying "on sale".
Investors must clearly differentiate between a great company and a great stock. Fundamentally, Costco is a great company. There is no question in my mind. But, is it a great stock? To that I would say no. The stock is priced, as they say, to "perfection".
Stocks priced to perfection can be hit hard if anything goes wrong. For example, if they have a slow quarter in sales, a stock can get pummeled. Costco has had slow quarters before and they will have them again; it is just life. Similar to sports teams, there are ebbs and flows on their journey to success. Few ever go "in a straight line" to the top. The key is continuing to execute consistent fundamentals behind a well-conceived strategy.
Costco continues to execute well. As I always say, they have an excellent three pronged strategy. First, they take care of their customers well with outstanding cost versus value tradeoffs. Second, they take efforts to assure their employees are taken care of with pay that is above the average for the retail sales industry. Finally, they provide excellent long-term financial performance for their shareholders. This is a win/win/win strategy. I believe it is the fundamental reason behind their success.
Next time you go by a Costco, look at how many cars are in the parking lot. I bet it will be rather full. This alone should tell you a lot about how they are doing.
Keep up the good work Costco!
