Costco wholesale company (NASDAQ:COST) shareholders may be concerned after the stock price fell 10% in the most recent quarter. But that hardly detracts from the really solid long-term returns the company is producing over five years. It’s fair to say that most would be happy with a 184% gain in that time. We believe it is more important to look at long-term returns than short-term returns. The more important question is whether the stock is too cheap or too expensive today.
Although the stock is down 4.8% this week, it’s worth looking longer-term and seeing if historical stock returns have been driven by underlying fundamentals.
Check out our latest analysis for Costco Wholesale
Freely adapted from Benjamin Graham: In the short term the market is a voting machine, but in the long term it is a scale. An imperfect but simple way to study how a company’s market perception has changed is to compare the change in earnings per share (EPS) to stock price movement.
For more than half a decade, Costco Wholesale managed to grow its earnings per share by 17% per year. That EPS growth is slower than the stock’s 23% annual growth over the same period. So it’s safe to assume that the market has a higher opinion of the company than it did five years ago. Given its five-year track record of earnings growth, that’s not exactly surprising.
The graph below shows how the EPS has changed over time (click on the image to see the exact values).
We like that insiders have bought stocks over the past 12 months. However, most people consider the earnings and revenue growth trends to be a more meaningful guide for the company. This free Costco Wholesale’s interactive report on earnings, earnings, and cash flow is a great place to start if you want to investigate the stock further.
What about dividends?
When looking at investment returns, it’s important to consider the difference between Total shareholder return (TSR) and stock price return. While stock price return reflects only the change in stock price, TSR includes the value of dividends (assuming they have been reinvested) and the benefit of a capital raise or spin-off at a discount. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. Coincidentally, Costco Wholesale’s TSR over the last 5 years has been 205%, which beats the previously mentioned stock price return. The dividends paid by the company thus have the total shareholder return.
A different perspective
It’s certainly disappointing to see Costco Wholesale’s stock down 4.6% for the year, but that wasn’t as bad as the market’s 25% drop. Of course, long-term returns are far more important, and the good news is that the stock has returned 25% each year for five years. The company may only face short-term problems, but shareholders should keep a close eye on fundamentals. It is always interesting to follow stock price developments over the longer term. But to better understand Costco Wholesale, we need to consider many other factors. Think of risks, for example. Every company has them and we discovered them 1 warning sign for Costco Wholesale you should know.
There are many other companies where insiders buy stock. You probably do Not want to miss this free List of growing companies that insiders are buying.
Please note that the market returns reported in this article reflect the market-weighted average returns of stocks currently traded on US exchanges.
Do you have any feedback about this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
Join a paid user research session
You will receive one $30 Amazon Gift Card for 1 hour of your time while you help us create better investment tools for individual investors like you. Sign up here