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Costco (COST) is an all-time great stock and one of my personal favorite businesses because of the tremendous value it provides to consumers.

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Costco is relentless in its quest to provide consumers with low prices. One measure of the company's integrity to its mission is its extremely low margins. FY23 operating margins were 3.35%. That is, out of every dollar a consumer spends at Costco, only a little more than 3 cents is operating income for COST – and they have to pay taxes on that 3 cents.

Costco's stock is beloved among investors as well because of its stellar long-term performance. As a result, the stock perpetually trades at a high multiple. I finally bit the bullet and bought shares in December 2022 when it dropped $60 in five sessions and breached $500. My intention was to hold for a very long time, but the stock appreciated so much that I decided to take profits in December 2023 at around $650.

I didn’t think the multiple could continue to expand much more. I was wrong. Costco's stock closed Friday at around $750, and it now trades for 50x my FY24 EPS estimate of $15. That’s insane. Competitor Walmart’s (WMT) multiple is half that (25x).

Costco is a great business, but it is not a growth stock. The stock earned $14.16 in FY23, $13.14 in FY22, and $11.27 in FY21. While I expect earnings to continue to grow steadily, they are not growing fast enough to justify a 50x multiple. The stock continues to go up because momentum and technical players are piling in. The price can no longer be justified on fundamentals.

Costco reports Q2 FY24 earnings on Thursday afternoon.

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