Here's My Top Stock to Buy in September
Paying a high premium for shares of a publicly traded company comes with significant risk. Namely, if the stock falls out of favor for one reason or another in the coming years, multiple compression (a declining price-to-earnings ratio, for instance) alone could seriously hinder shareholder returns, even if the underlying business is doing well. For this reason, investors may want to seriously consider limiting their portfolio's exposure to highly valued stocks. Further, investors should limit their investments in highly valued stocks to those with a very good probability of sustaining earnings growth for years (and hopefully even decades) to come.
With these considerations in mind, Costco (NASDAQ: COST) is arguably one of those rare companies worth its high price-to-earnings multiple. Here's why investors may want to consider buying shares of the membership-based wholesale grocer.
The first thing investors should try to ensure they're getting when they are paying a high valuation multiple for a stock is a durable business model. To this end, it makes sense to look for a business model that is extremely customer friendly -- one that delivers significant value and satisfaction to its customers.
Source Fool.com
