Research Articles

Costco vs. Wal-Mart: Who Wins the Stock Price Wars?

Julie C - Thursday, October 07, 2010

Headquartered in Issaquah, Washington, Costco (COST) reported fiscal year fourth quarter earnings Wednesday that beat street estimates only to see its shares slide. Although earnings were two cents better than estimated, revenues came in a little short. So far, the media is attributing Wednesday’s stock slide to the revenue miss and slightly slower September sales growth.

All in all, we feel that Costco turned in a good quarter and a strong recovery over calendar year 2009. Net earnings were up approximately 16% for the fiscal quarter and at $2.92 for the year, up 14.5% over 2009 earnings of $2.57. Therefore, on the surface everything looks fine. However, a deeper look at Costco’s lofty valuation is of concern, in our opinion.

Figure 1 below looks at Costco through the lens of our EDMP F.A.S.T. Graphs™ since 1997. Costco has grown earnings per share by 11.7% and offers a dividend yield of 1.3%. The black price line is currently above the earnings justified valuation line with a calculated fair value PE of 17.2. Therefore, we contend that Costco is overvalued with a PE ratio of 21.9.

Figure 1 COST 15yr. Growth Correlated to Price (Click to enlarge)
Figure 1 COST 15yr. Growth Correlated to Price

Figure 2 below looks at Wal-Mart (WMT) whose Sam’s Clubs stores are a major competitor of Costco. Wal-Mart has grown earnings faster and more consistently than Costco, yet only trades at a PE ratio of 13.8 versus Costco’s PE of 21.9. Wal-Mart pays a higher dividend yield than Costco, but does have a little more debt. Nevertheless, it seems odd that Wal-Mart shares currently trade at such a discount to Costco.

Figure 2 Wal-Mart 15yr. Growth Correlated to Price (Click to enlarge)

Figure 2 Wal-Mart 15yr. Growth Correlated to Price

Conclusion

Costco certainly had a decent quarter and its long-term record of earnings growth is also very solid. However, Wal-Mart has done better on all counts. Yet it sells at a much lower valuation and even offers a higher dividend yield. Therefore, it would be hard for us to buy Costco today when Wal-Mart is available at more than a third off.

We believe that you make your money on the buy side, and getting valuation correct is critical. Earnings growth is important because that’s what will generate the future stream of income that investors will be rewarded by. However, if you overpay, then good operating results can be for naught.

Disclosure: No position at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

(

Comments
Anonymous commented on 18-Oct-2012 10:40 AM
I've been surfing on-line greater than three hours nowadays, yet I by no means found any interesting article like yours. It¡¦s lovely value enough for me. In my view, if all website owners and bloggers made excellent content material as you probably did, the internet might be a lot more helpful than ever before.
online slotspoker machinesfree pokies
Anonymous commented on 18-Oct-2012 01:36 PM
hi!,I love your writing very so much! share we keep in touch extra about your article on AOL? I require an expert in this space to solve my problem. May be that's you! Having a look ahead to peer you.sump pump
Anonymous commented on 19-Oct-2012 02:36 AM
The must have summer
Canada Goose JacketsOutlet styles include the timeless denim and leather as well as cropped and trench-style style items.
Canada Goose Parkas Outletare great in winter for warmth; they can be great on different styles and can go with casual or formal looks.The
Canada Goose OutletExpedition Parka provides heavy-duty warmth thanks to its high-quality duck down insulation.It is not a novelty that military style tops the leading fashion trends
Canada Goose Jackets Outletdue to its refined and classic influences and qualities.
Anonymous commented on 19-Oct-2012 10:35 AM
I understand that in Egyptian hieroglyphics Louis Vuitton Official Website the course of development from ideograms to phonetic writing can be studied.Regarding the craft,the goods fromCoach Outlet Store is tight,the seams are aligned and details emulate the designer's actual handbags.west plus southwest around the commune,Louis Vuitton Online Store is usually a pure gardening plus Commune.Coach Outlet Online The staff was adamant about the policy even though they acknowledged there was nothing stopping us from coming in the next day and purchasing from another shop girl.Louis Vuitton Outlet iphone cases I was excited to see this coat online since I love Louis Vuitton, and I needed a new coat like this.This Louis Vuitton Canada for sale belongs to the sounding just what are termed asLouis Vuitton vintage best sellers.
Anonymous commented on 19-Oct-2012 03:25 PM
You actually make it seem so easy with your presentation but I find this matter to be actually something which I think I would never understand. It seems too complex and extremely broad for me. I am looking forward for your next post, I will try to get the hang of it! Click Here For More Info Check These Guys OutClicking HereOur siteHome Page
Anonymous commented on 21-Oct-2012 04:21 PM
Good write-up, I am normal visitor of one's site, maintain up the nice operate, and It is going to be a regular visitor for a lengthy time.halogen cooker
Anonymous commented on 22-Oct-2012 01:51 PM
You can certainly see your enthusiasm within the paintings you write. The sector hopes for more passionate writers like you who are not afraid to say how they believe. Always follow your heart. "Billy Almon has all of his inlaw and outlaws here this afternoon." by Jerry Coleman. online kasino
Anonymous commented on 22-Oct-2012 05:04 PM
Thankyou for helping out, great info . best dehumidifiers | coffee grinders |generators |Humidifiers | leaf blower | paint sprayer reviews

Post a Comment




Captcha Image


Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”


Recent Posts


Tags

Bond,TGT,UTX MAT AEG CHE UNP MAIN REXX HOG PPG BF.B ACI MSFT GOOGL CASY THFF portfolio fastgraphs OII DTE RKT AZZ BHB BKH SU Champions PCL BMTC dividendGrowth SIG POWR UL TIF MSCC CAH treasury Aristocrat HPQ DLPH stock research 3NSRGY THC STE CL HIBB EBAY WFM ESRX AEP EK ACQ PKG dividend income HAS NTES AMAG VRTU GrowthOriented PEP SWK ETR investing XOM AMCX CTG BAX long HCI BPL growth stocks TRV POM Macro view MHP Telecommunications MPW ORCL UTX AFG APD CTCM CR food service CERN CAT CLR OXY SYY WBA BCE TXT LLL ATHM CVX,SWK,MCD,TGT,PG,WMT,JNJ,MDT,AFT,T,ED AFSI WVR EMR DTV HNZ NROM DividendIncome short ideas economy NLY RSO SYT PAG TUP SUBX fair valuation MTZ JNJ CPN Consumer discretionary FDX BR AAP BEN AFAM CHS LKQ MIDD TE JWML.Y CVX F PortfolioDesign POR OHI,EPR,WPG,JLL FOMC PNM MO SPY DOV HBI LQDT Buffett P MNR AM CRI EWBC COL AGN ODFL beta FinancialSector CACI CLX,EMR SYK GME FAST OSIS OZRK SLW DHR marketvaluation AGLP Challengers suvivorship basis FairValuation SHOO ECL PPL X DLR cash flow EnergySector INFY NSRGY COO DTEGY GMCR MDP ANTM UTHR investing for income CACC JRN FOSL DELL BMS RY WY CINF MYL ATW LH BANF dividend-growth JWN true worth DMRC KMB FLO VTR V AMP SNI ABBV CLF intrinsicvalue OHI UEPS REITs COH value-oriented GPCM HON cyclical WSM CFR PG DRC GPI SNCR BWLD GAS CTBI long-term investing market timing TEVA market RTN AAPL ACM AXP capital appreciation SCL MCK ACR WWW BBBY MGEE Dividend Ideas FRED interest rates ORI PRGO fair value PCP BMO CMI HCA IR, ADM MCY KO AZO dividend growth ONE AVP T DAN InformationTech HRL MKC CTAS HSY cashflow TSM INTC THO AB DPS LXU CKSW DOW K VZ MNST MNK CBU SO ANDE Industrial ROST EE GE DE OUTR CE DORM BOKF HII JAZZ TAC EMR, MMM MCHP FLIC NA AKRX HGT GLT BAC NVS FAF machinery CTSH SNH C fast-growing BIIB RAI SXL ZBRA Utilities Sector GILD TWGP MATW SILVER BLK CTRX FBHS GD ESI MMM DVA hyper growth stocks SRCE KMP dividend stock research tool MA GOOG LLY SIVB mid-sized URI AMT POT BHP AFL ROSE OKE suvivorship act PBI RBC HCBK INT FRAN growth JCI XEL stock NFLX DR SAM Materials VAL FairlyValued R value trap GPC WLP TOT AIRM AAN BOFI EV RMD RDS.A JCOM technology BOBE ADT DDS CSX AET ITW, CVS EMC PSX ConsumerDiscretionary FC MGRC HSNI BBY ETN MAN O NPM VVC JKHY TMP FTR TGH MSA WU regional banks stock analysis KO,CLX,CELG,JCP,GT,MSI,PEP,ED WAG long-term SWFT ETP MCD ABC TWX TROW CBRL NSC SBRA biotechnology HE FAST Graphs FISV JSFT CanadianBanks TGT EPHC BNS. TNGO long ideas Stock Research Analysis AMGN BEAV NOG SoundValuation TICC DGAS RRD PCLN HighQuality EXLS SPLS RSG Share Buybacks TGI mid-cap ENSG SHPG FTI,HTZ D BigFive,Canadian SHR BCOR HCP Aristocrats ITW long-term growth investment value SBR CLX CNSL JOY DOM SEIC SAVE ALTE UHS free cash flow APEI SON FCFS QCOM LMT WMT PRAA blue-chip MHS WASH ACOM CNC ACN CTL VFC WEC long-term returns ABT XRX Valuation CAPE Fundamentals COP BMRC retirement FUL utility stocks macro STMP BNS Yield CSCO BWP AA DGX RIMM SWKS CCK IPAR RS VRX INGR stockResearchTool intrinsic value,stocks,earnings,fundamentals,stock research tool,due diligence JPM Utilities LEN due diligence SCHW NC WRLD FL FDO GPS SLGN WIN ABM DollarCostAverging BIDU ED:SCG PII CELG WGL OGE WFC COST FF SHW MELI Market Outlook HRS earnings growth MNTX DKS EXC ED FB KALU IR RCII BLL Contenders HD GWW DD NSR IDA PFE CGY ULTA PM AFL,CVX,ED,JNJ,MCD,PG,SWK,T,WMT,TGT,ABM,AFL,BEN,BMS,CB,CBSH,CTBI IBN THRM Overvalued APH DRIP CBI investing for total return MDT KMT MRK AVD market currents PB LO SJM stocks HSC DIS SYNA RJF MTW CAM KFT PNW CSL GIS DRI VMI PEG dividends dividend growth investing diversified machinery EAT US Economy CHD LZB ASNA best-of-breed CPB PRXL PFG PNR LTM value investing ADP CB M SFG DNB DividendChampions banks NKE TEG: WEC: BDX intrinsic value blue chip AIG InterestRates MGA PNRA VCO QCOR AMZN ARRS AMBN investing for income,growth and income fundamental stock research tool LL ITC KR ARLP SBUX dividendpaying UNM dividend paying earnings TIS CRLI RSG,RTN ACE IBM SCG NOC AMG UN biotech ZUMZ ECHO DFS HCN GEOS TNC BH dividend-paying dividends,earnings growth ICLR PDFS DECK GT TSCO BRLI BA dividend paying stocks CIO BRS UNH CM OKS GES TU MUR GNTX KSS healthcare HP KCAP LINE INWK sell BCR GOLD TEF high-yield WMT,ROST,GIS,GE,JNJ,KO Dividend Champions BG NEE ENDP CATY WHR RRC BAP AOS highqualityR DividendAristocrats ALB total return WST LOW CXRX consumer

Archive

Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”