• GB Davis

Security in Focus: Costco ($COST)

We've added Costco to our Watch List. This is a behemoth of a company with lots to like. What we don't like, in a nutshell: 1) security appears to have gotten a bit ahead of itself; though, perhaps not unwarranted, just unknown - last Q was a huge beat, as Sales ramped 7% with 0.3% flow through on GM; 2) valuation in that 17x+ multiple range (we like more value than that). On the positive side: strong footprint, growing (Revs, EPS), flexible business model (operating leverage), strong management, low debt as % of EV, low short interest. We think we the low payout ratio (<30%) of last Qs numbers continue to flow through in this quarter and next, a dividend raise would be called for. We like an entry lower than this, as this was on a fire sale in D

ec at $190, and only in Mar built from $225 up to the $240 range. Over the last year, it's it a 3X on the broader index (S&P500) and this becomes our issue with many securities that we fundamentally like, valuation. We'll continue to monitor this for entries to scale into closer to $225-$230. Should the market tank like 4Q18, and this revert closer to the S&P500 performance, or its 4Q18 value, it's on our shopping list. #NotInvestmentAdvice #NoPosition #COST

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