History Says That Costco Stock Is Overvalued. What Does That Mean for Investors in 2024?
For shoppers looking for good deals, Costco Wholesale (NASDAQ: COST) is a dream come true. The warehouse club retailer sells all sorts of things at extremely attractive prices, from rotisserie chickens to hot dogs to $250 Disney gift cards for $224.99. It's ironic, therefore, that this retail chain known for bargains has a stock that's anything but a bargain.
In the business world, businesses (whether public or private) are bought and sold largely based on their future financials. For example, for a business with $10,000 in annual profits, someone might buy a stake in the company based on the idea that the business will eventually post profits of $50,000. Or for a business with $1 million in annual revenue, someone might buy in on an assumption the company will soon report $1.5 million in revenue. There's a lot more that goes into it, but you get the idea. Investors are willing to pay a premium to get in on the future potential of the company.
When buying a business though, investors should also be concerned about recouping their cash and eventually making money on their investment. Therefore, it's important to not overpay up front.
Source Fool.com
