Costco is one of my favorite stocks on the planet. If you talk to investors who think they are smart, many of them will tell you Costco is their favorite stock in the market, and they are right. Costco’s unique consumer structure, brand loyalty, and excellent leadership are what make Costco so excellent. However, I am not here to brag about Costco and tell you why you need to buy, I am here to re-evaluate where Costco is, following its most recent quarter of earnings.

     First, the numbers. They beat revenue by $500 million, same-store sales growth of .6% more than expected, and net income that was $30 million more than expected. The stock is up 24% YTD and has a forward P/E of around 45, so it is expensive, so expensive, that many investors are scared away. And as many of you know, the higher a company’s P/E, the more intense the pressure is upon a company’s earnings, so if Costco had missed on a couple of key metrics, the stock would have plunged, but if they had hit it out of the park, the stock likely would have gone up a percent or two. Earnings in general were pretty good for them. The company beat on pretty much everything, and the stock fell 2%.

     The stock most likely would have gone up had Costco increased its membership fees. Costco’s membership structure is what makes the company unique and extremely lucrative, so investors want to extract as much value as possible from those memberships, and push fees as far as possible. Costco generally increases its membership fees every five years, but it has now been seven, and while the company insists it will raise fees soon, it seems less committed internally, and I agree with the leadership.

     First, the American economy could turn. I would like to see rates and inflation go down first before I see those membership fees go up. Once the fees go up, the company is much less recession-resistant, and it leaves the company open to a mass exodus of members. Now, I think that this future is unlikely, but why risk it? The stock is doing great (up 25% YTD), revenue keeps going up (up 11 billy YTD compared to last year), and Costco leadership is almost always right about what needs to happen for the company.

     So, should you sell out now, hold, or buy? Obviously, I am not going to tell you to sell out of the stock, and buying this mature of a company at a 45 forward P/E is a lot, so I am going to keep holding. The only way I would buy more Costco right now is if the company’s price fell by 50% tomorrow. And yes, I did sell out recently, (plz don’t call me a hypocrite though) but that was only because it had appreciated to 30% of my portfolio, and that was too much. HOLD, unless the company makes up over 25% of your portfolio, and if you own none, you should buy at any valuation, but if you already have a position, there is no need to add more.