iBooyah.com: The ways of Costco (COST)
The weekend is usually a time to relax with the family, take care of yard work, maybe watch some TV and it is also when folks visit Costco and stock up on everything from milk to Plasma TV. Over the weekend, we visited the local Costco with the goal of buying some milk and eggs and ended spending a lot more. This happens every time! We arrived at 11 AM, the parking lot was full, the shopping carts were all in use and the stores were filled with people. The lines at the food court were starting to form. The Tire Center was busy selling and installing new tires. This place was busy. It occurred to me I should be looking deeper into this company to see if it is a worthy investment.
In researching Costco, I learned a few interesting things. The CEO, Jim Sinegal, salary is $350,000 a year, a fraction of the millions most large corporate CEOs make. His employment contract fits on a single page, nothing fancy such as a golden parachute. Mr. Sinegal is one of the co-founders of Costco so he does hold substantial shares in Costco. According to a recent report, his stock holding is worth a little more than $150 million (abcnews.com, 2006). For a co-founder of a large company, this is relatively small.
The other interesting thing about Costco is they appear to genuinely care about the employees. In comparison to other retailers, Costco has the lowest employee turnover rate in retailing. Its turnover is five times lower than its chief rival, Wal-Mart. And Costco pays higher than average wages — $17 an hour — 40 percent more than Sam's Club, the warehouse chain owned by Wal-Mart. And it offers better-than-average benefits, including health care coverage to more than 90 percent of its work force (abcnews.com, 2006). Costco is what most of us would like to see Wal-Mart do in respect to their employee compensation.
This formula of treating employees well has translated into huge success for Costco. This year's sales total more than $52 billion from 462 stores in 37 states and eight countries. Costco is now the nation's fourth-largest retailer. This is hardly news to me as every time I visit Costco, it is always busy and everyone seems to walk out with their shopping cart(s) packed. If you are anti Wal-Mart, but loves the low prices, it seems to me Costco (COST) is a great company to invest. Well, you can go sleep at night knowing the company is actually doing their part to sustain the community and their CEO is one of a kind.
Costco (COST) stock has been performing relatively well. If you bought this stock in the high 30s couple of years ago, the investment has been rewarding as it is currently at $50/share range. At the current level, Costco is actually a little more expensive that Wal-Mart (WMT) and Target (TGT) in term of the P/E. The EPS is about the same as WMT and TGT. If this stock were to drop to $45/share, it would bring the P/E inline with the industry. In my view, buying COST below $45/share would be a deal.
Reference:
http://www.abcnews.go.com/2020/Business/story?id=1362779
