Costco (NASDAQ:COST) is a membership-only retailer that sells everything from gasoline to groceries to merchandise. I’m bearish on COST stock because I believe its valuation is exorbitant and suggests unusually high growth rates decades into the future. At 47x earnings, Costco’s valuation is in bubble territory and ignores the inherent risks of retailing.
Costco’s Valuation Ignores the Risks
Over the past few years, the mantra has been to pay up for quality businesses. Costco is certainly viewed as a quality business. However, Sears and Kmart were also quality businesses at one time, and they have since filed for bankruptcy. Retailing is a difficult, low-margin industry, which is all the more reason to invest with a margin of safety.
To explain the risks of investing in retailers, let’s go down memory lane and have a look at Kmart’s history. In the Nifty Fifty…
