Chaos in the Costco aisles

There are few things Americans can agree on, but one thing that consistently unites the country is discount grocery retailers—and their beloved free samples.

Costco announced it was raising membership costs for the first time in seven years on Wednesday, while also vowing to crack down on the sharing of membership cards. Starting in September, Costco is increasing its membership fee by $5 to $65 per year for its Gold Star Membership, and raising the annual fee for its Executive Membership by $10 to $130.

The price increase is just the latest strategy from Costco to keep the good times rolling. The stock is up 30% year to date, and 57% over the past 12 months. Going back even further, Costco has been handily outperforming the S&P 500 over the past five years thanks to its loyal customer base, consistent sales growth, and ever-expanding footprint.

While the stock jumped briefly on the announcement of the membership fee increase on Wednesday, it fell about 2% yesterday as investors sold on the news.

Should investors put Costco stock on their shopping list?

But you can have too much of a good thing—or at least that’s what the free sample lady told me after I ate my 47th mini frittata. Some analysts are warning that Costco is overpriced after its steady climb higher.

“It is a juggernaut,” wrote Tradequotex.com analyst Cory Mitchell in a written comment. “Industry analysts are still projecting Costco will be able to increase yearly earnings at a higher rate than most S&P 500 companies over the next five years. It’s a solid company, yet right now the stock is near one of its highest P/E levels ever. It is overpriced,” he wrote.

But other analysts still think the stock has room to run. “COST again showed that the warehouse club operator continues to gain market share in a challenging macro environment,” wrote UBS analyst Michael Lasser, who has a “buy” rating on the stock and a $940 price target. He added that despite the price increase, investors should “expect the vast majority of COST members will still see the overwhelming value in a COST membership.”

So even if you’re paying more for your Costco membership this fall, maybe you can make it back in your portfolio’s profits.—LB