Costco unveiled its monthly sales report. The company achieved revenues of $78.2 billion in August, a year-on-year increase of 7.1%. This growth continues the trend that the company has been on for the last six quarters, with an average revenue growth rate of 6.5%.
Looking at comparable sales, the company achieved 5% revenue growth in August, with retail sales in the US and Canadian markets up 4.7% and 4.5%, respectively. The company has seen continued strong growth in its e-commerce sales segment, where sales rose 23% year-on-year.
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Open real account TRY DEMO Download mobile app Download mobile appIf comparable sales are adjusted for the impact of fuel sales and currency movements, growth in August would have been 7.1% y/y, and 23.3% y/y in the e-commerce segment.
Costco remains trading at a significant premium to the rest of the US retail segment. The P/E ratio of 54.4x remains more than 2 times the value for the sector as a whole. On a P/BV and P/S ratio basis, the company also significantly outperforms its segment.
This situation has been going on for a long time, and looking at historical forward P/E ratios, Costco's ratio has exceeded the sector by an average of 1.78x and the entire S&P 500 index by 1.86x. Even with the trend of strong premium to index, current Costco values implies strong overvaluation.
Comparison of forward P/E ratios against historical values (top chart), the sector (middle) and the S&P 500 index (bottom). Source: Bloomberg Finance L.P.
Although since the beginning of 2018 it has presented a return of 365% (compared to the sector's return of 114%) it is worth remembering that trading in the area of such high ratios exposes the company to potentially greater volatility in the event of disappointing post-performance data.
