Costco Wholesale Corporation (NASDAQ: $COST) bucks the trend in today’s era of smartphone shopping and quick deliveries, remaining the largest warehouse retailer in the United States.
Its strategy is straightforward: instead of competing solely on margins, the company focuses on selling membership cards, and it’s been highly successful in doing so.
In 2021, Costco boasted approximately 111.6 million membership households across eight countries, generating about $3.8 billion annually in membership fees alone.
With a membership renewal rate exceeding 89%, even during periods of reduced sales, the company maintains a reliable and predictable source of revenue.
Investors are willing to pay a premium for each share relative to the company’s earnings because they anticipate continued growth.
As of October 29, 2021, Costco’s shares were trading at $491.54, reflecting a growth of over 20% compared to the previous year.
Costco’s trailing twelve-month price-to-earnings (P/E) ratio stood at 40.02, relatively high for its industry. In contrast, the SPDR S&P Retail ETF has a P/E ratio of 11.7.
While Costco offers a dividend yield of 0.71%, which can help offset its high stock prices, some other companies are priced lower and provide higher dividends.
For example, Walmart is priced at $139 per share and has a dividend yield of 1.58%.
The elevated share prices are favorable for existing investors, but potential buyers may exercise caution when considering an investment in a stock that has consistently maintained high prices.
Future gains will depend on Costco’s ability to expand its offerings and customer base.
Although entering the market at the right price is sage advice for any investment, the risk associated with Costco stock is particularly notable.
The uncertainty lies in whether the company can adapt to evolving customer habits, as online shopping and e-commerce pose potential challenges to Costco’s business model, offering consumers the convenience of finding the lowest prices from the comfort of their homes.
COST News Update
Costco Exceeds Expectations With 4.5% September Sales Growth
Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on the shares of Costco Wholesale Corporation COST and raised the price target from $575 to $600.
Costco reported better-than-anticipated September total comparable sales growth of 4.5% versus the analyst’s view of 3.8%.
In September, total traffic increased +4.9% while the average ticket fell 0.3%. The ticket decrease was related to softer sales of discretionary products, partly offset by gains from higher fuel prices, said the analyst.
Costco’s digital business is skewed toward discretionary categories, which is still dragging the growth, added the analyst.
Looking ahead, the analyst said the enhancements to Costco.com and its mobile app, the expansion of its Costco Next.com program, and leverage of member data to undertake targeted marketing should help results.
Costco is executing well in this uncertain operating environment, and the analyst expects the company to remain a share gainer with its solid sales and high membership renewal rates.
Costco Stock FAQs
Is Costco a high risk stock?
While Costco boasts clear competitive strengths and a history of consistent outperformance, there are concerns about the stock’s valuation, which appears to be on the high side.
Additionally, the company’s management anticipates slow growth in the future. Compounding these issues, the prevailing economic uncertainty elevates the level of risk associated with the stock beyond the usual levels.
Does Costco have a future?
Costco Wholesale is anticipated to achieve an annual growth rate of 8.2% in earnings and 5.6% in revenue.
Additionally, its earnings per share (EPS) is projected to increase by 9.4%. Furthermore, the forecast suggests that the company will attain a return on equity (ROE) of 21.7% within a three-year timeframe.
Is Costco stock a good buy right now?
The range of analyst price targets for Costco spans from a high of $651.00 to a low of $478.00. On average, these targets project a 3.67% increase from the current price of $564.35.
The consensus among analysts is a Strong Buy rating, which is derived from assessments by 18 Wall Street analysts.
What will Costco stock be worth in 5 years?
As of October 5, 2023, the quote for Costco Wholesale Corp stands at $572.310 USD. According to our projections, there is an anticipated long-term increase, and the forecasted stock price for “COST” on September 29, 2028, is $930.049 USD.
With a five-year investment horizon, it is expected that the return could be approximately +62.51%. This means that your initial $100 investment may potentially grow to $162.51 by 2028.
Is Costco stock a buy, sell, or hold?
As per information obtained from MarketBeat.com, the stock presently holds an average rating of “Moderate Buy” and a collective target price consensus of $586.25.
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