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Where Could Costco Stock Be Heading?

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Apr. 11 2019, Published 7:29 a.m. ET

What could limit the upside in Costco stock?

Costco (COST) shares are trading at a forward PE ratio of 30.2x, which seems high given the projected EPS growth of ~7% in fiscal 2020. Costco has outperformed its peers with its sales and earnings growth rate. Walmart (WMT) and Target (TGT) also posted impressive comps in the past four quarters. However, Walmart and Target’s growth rates were lower than Costco.

Strong sales and earnings growth drove Costco stock higher. Costco shares have risen 20.6% on a YTD basis as of April 10. However, the expected slowdown in the comps growth rate and high valuation could limit the upside.

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In comparison, Walmart and Target shares have risen 6.9% and 22.2% in 2019. Walmart and Target are trading at forward PE ratios of 20.9x and 13.8x, respectively. Kroger (KR) underperformed on the sales and earnings front, which dragged its stock down. Kroger stock has fallen 9.2% on a YTD basis.

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Rating and target price

Among the analysts covering Costco, 17 recommended a “buy,” while 12 recommended a “hold.” Analysts have a target price of $245.92 per share, which is on par with its closing price on April 10.

In comparison, most of the analysts covering Walmart and Target stock continue to remain on the sidelines and suggest a “hold.”

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