These investors bought a high-quality company at a massively discounted valuation.
Costco Wholesale (COST 0.19%) has long remained one of the most successful retailers in the U.S. and much of the world. However, this did not make the company invulnerable 15 years ago during the financial crisis.
At that time, its rapid growth briefly turned negative as consumers reined in unnecessary spending. Nonetheless, it was also a retailer that recovered quickly as the crisis receded. Additionally, the improvements led to massive gains for the retail stock as its expansion continued.
Costco’s gains over 15 years
In August 2009, a $10,000 investment would have bought 206 shares at around $48.50 per share. Today, at a price of just over $881 per share, that investment would be worth just over $180,000. Also, if accounting for the total return, which includes dividends, an investor would have more than $250,000.
As mentioned before, despite its recession-resistant business, Costco did not escape the effects of the financial crisis. In fiscal 2009 (ended Aug. 30, 2009), its net sales of $70 billion fell by almost 2% from year-ago levels. This was quite a change considering the 13% increase in net sales in 2008.
However, disciplined investors saw the opportunity as the crisis took Costco’s P/E ratio to just 19 times earnings, far below today’s 54 earnings multiple.
Moreover, the 2009 net sales decline became an anomaly, as net sales rose 9% in fiscal 2010 and 14% in fiscal 2011. Such growth rates set off a steady rise in the stock price that continues to this day.
Lessons for today
Admittedly, Costco’s success is likely more than priced into the stock today. At the aforementioned 54 times earnings, investors may hesitate to pay such a price when net sales rose by only 7% in the first three quarters of fiscal 2024 (ended May 12).
Nonetheless, the state of Costco in 2009 is a reminder of how buying opportunities in high-quality companies can appear in tough economic times. Knowing that, one should learn to put negative feelings aside and begin accumulating top-notch stocks during such times.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
