Last night I dropped by the Money Happy Hour podcast for what turned out to be a fun chat.
The host, Tom the Savings Captain and I touched on something you might like.
We were talking about Costco being very expensive and waiting to buy.
And then dot com darling Cisco came up.
At its peak in 1999 it was trading at 200X earnings.
Had you bought $10K worth on 12/24/1999, you’d be up $3,886.17 or 38.80%.
With dividends reinvested.
That’s an annual return of 1.36%, which is a big old bucket of yuck!
So the point we made was that even if it’s a good business, it can be risky to just buy and hold at any price.
As I type this the S&P500 is down 1.62% on the day.
This could give us opportunity to buy GREAT businesses at CHEAPER prices.
And as for Costco, if we multiply their TTM EPS of $15.1 by their 5Y P/E average of 35.7, we get a price of $539.07.
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That’s about 26% below the current share price.
And if we use forward P/E estimates of $16.5, it gives us a baseline of $589.05.
That’s still 19.5% below the current share price.
That’s just a back of the napkin, ultra quick valuation method that tells me Costco (COST) is still too expensive.
Just some food for thought that unless you’re buying an index fund, price has to be considered.
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Thanks for reading, and be sure to stay tuned for the Sunday portfolio update edition.
~Russ Knopf
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