Costco: Awaiting a Valuation Reversion for a Dollar-Cost Averaging Opportunity

about 1 month ago

"Now, Costco is an amazing company but despite the selloff it's trading at 49 times trailing earnings – way above its historical average of around 38 times. I'd get only about 40% upside on a buy at today's level, translating to just a 7% annual return. In my scenario, I'd bet on a reversion to 38 times earnings. In that case, to double my investment over the next 5 years, I would have to pay about $65 per share. Anywhere in the range between $780 and $600 would be a good time to start dollar cost averaging a small position."

The analyst highlights that Costco's current high valuation leaves limited upside at prevailing multiples. He envisions a reversion to its historical multiple and suggests that a meaningful trade entry would require a significant discount – around $65 per share – to achieve a strong return over a 5-year period. The trade is positioned as an opportunity for dollar-cost averaging once the stock trades at more rational multiples.

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