Costco Stock Trades at Over 50 Times Earnings for Only the 2nd Time in Its History. What Happened Last Time Could Signal What to Expect This Time.

Imagine if for $1 million you could buy a business that makes $100,000 in annual profit. In investing lingo, one would say this business trades at 10 times its earnings or at a price-to-earnings (P/E) ratio of 10. It's helpful. In this particular scenario, one would recoup the purchase price after 10 years. Year 11 and beyond would allow the investor to make serious money.Of course, it's an over-simplistic way of looking at things. In the real world earnings are rarely static. But it still demonstrates how a P/E ratio works and why one would want to buy a business at a lower P/E ratio if at all possible.Buying shares of Costco Wholesale (NASDAQ: COST) at a lower P/E ratio is not possible right now. As of this writing, Costco stock trades at 55 times its earnings, which is just the second time in its history that its P/E ratio has gone over 50.Continue readingWeiter zum vollständigen Artikel bei MotleyFool Weiter zum vollständigen Artikel bei MotleyFool