At Extreme Investor Network, we understand that chasing hot tech stocks isn’t the only way to earn great returns in the market. Take, for example, Costco Wholesale (NASDAQ: COST). Five years ago, an investor who bought $1,000 worth of shares would now have $3,467, including dividends, for an impressive annualized return of 28%. This performance has far surpassed the S&P 500 index.
So, what has contributed to Costco’s exceptional stock performance? While the company has seen solid increases in sales and earnings, a significant portion of the stock’s rise over the last five years has come from an expansion in the price-to-earnings ratio (P/E). This indicates that investors have been willing to pay more for a share of Costco’s earnings.
Looking ahead, investors may wonder if Costco stock will continue to soar at the same rate. While Costco is a fantastic business, it is unlikely that the stock will jump 200% in value every five years. With net sales climbing 7% last fiscal year and net income increasing 8%, the average Wall Street analyst projects Costco’s earnings per share to grow at an annualized rate of 9% over the next several years.
Given these projections and the stock trading at a historically high P/E of 52, investors should temper their expectations for future gains.
Before considering an investment in Costco Wholesale, it’s important to note that the Motley Fool Stock Advisor analyst team has identified what they believe are the 10 best stocks for investors to buy now – and Costco Wholesale didn’t make the cut. Past recommendations from Stock Advisor, like Nvidia back in 2005, have yielded monumental returns for investors.
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