Costco Wholesale (COST -7.64%) stock is a perennial winner, beating the market time and time again. Even as sales growth has essentially stalled, Costco stock is still ahead of the S&P 500 this year, with a 23% gains versus almost 20% for the index.
There's obviously something investors see in Costco that's compelling them to pick up shares even in this pressured economy. Let's check out what it is and whether you should buy shares, too.
Sales are slow, but membership is booming
Sales growth has slowed to a trickle at Costco. In its fiscal 2023's third quarter (ended May 7), sales increased 1.9% year over year. Comps inched up 0.3%, and U.S. comps declined 0.1%. This was even worse in June, when sales increased 0.4% over last year and U.S. comps declined 2.5%. In this inflationary environment, even Costco's low prices aren't resulting in strong sales growth.
But just about every other metric that measures operational health is showing that Costco has momentum. In the third quarter, traffic increased 4.8% over last year, so this isn't an issue of losing customers--they're coming even more frequently. Average ticket was down 4.2% because customers are coming, but they're buying food and essentials and staying away from expensive, non-discretionary purchases. Interestingly, CFO Richard Galanti pointed out that customers are buying apparel "in a big way."
The most telling metrics about how Costco's doing, though, are the membership numbers. Membership increased 7% over last year in the third quarter, and renewal rates were at record highs of 90.5% globally and 92.6% in the U.S. and Canada. Customers aren't relinquishing membership while inflation is still strong, since it more than pays for itself in the rock-bottom prices Costco offers.
It's also important to remember that Costco enjoyed unprecedented growth for the first two years since the pandemic started, making it tough to keep building. But with its new customers and strong engagement, it should deliver higher growth when inflation stabilizes.
In some ways it's just getting started
One of the most compelling reasons to think Costco could still be a moneymaker is that it's nowhere near saturation. That's true even in the U.S., where it has 587 warehouse stores, but even more so internationally, where it has 268 more stores and is taking a measured approach to expanding.
Costco is opening 23 net new stores this fiscal year, and it plans to open 25 annually for the next five years before upping that to 30 for the following five. Notably, it's making strong inroads into China, where it recently opened its first store and where it plans to have six by the end of the year.
Right now, it's still opening more stores in the U.S. than international locations, with 13 domestically this year and 10 outside of the U.S. Galanti thinks that should rebalance to about half and half in the coming years, but noted that each time he thinks Costco's reached saturation in the U.S., new opportunities come up.
Is now the right time to buy?
At the current price, Costco stock trades at 41 times trailing-12-month earnings. That's not only objectively expensive, but it's also above recent averages. However, Costco stock trades at a premium because it's so reliable for gains. It also pays a dividend -- including a special dividend from time to time -- providing passive income.
Costco stock has beaten the market over almost any time frame, and as the time frame increases, so does the margin. Investors could wait for a pullback in the price before buying, but you can't time the market. If you believe in Costco's long-term growth story, Costco stock is a buy even now.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
FAQs
Before you buy stock in Costco Wholesale, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Costco Wholesale wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Is Costco stock a good buy right now? ›
Costco has a conensus rating of Strong Buy which is based on 19 buy ratings, 6 hold ratings and 0 sell ratings. The average price target for Costco is $783.04. This is based on 25 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Is Costco a good stock to buy in 2024? ›
Costco (NASDAQ: COST) has a habit of proving the skeptics wrong. Having started 2024 at a premium price compared to its rivals, the warehouse retailer has gone on to outperform peers again while touching new highs. Shares are up a blazing 45% in the past 12 months compared to Walmart's 20% gain.
What will Costco stock be worth in 5 years? ›
According to the latest long-term forecast, Costco price will hit $800 by the end of 2024 and then $900 by the middle of 2025. Costco will rise to $1000 within the year of 2026, $1200 in 2027, $1400 in 2028, $1500 in 2029, $1600 in 2030, $1700 in 2031, $1800 in 2032 and $2000 in 2034.
Is Costco stock overvalued or undervalued? ›
Key Points. Stock valuations can be subjective, but shares of Costco appear to be objectively overvalued. The retail giant has a great business model that has delighted both customers and shareholders. But BJ's Wholesale Club offers investors the same model -- and at a more reasonable valuation.
Is Costco stock expected to go up? ›
Stock Price Forecast
The 26 analysts with 12-month price forecasts for Costco stock have an average target of 720.04, with a low estimate of 585 and a high estimate of 870.
Why is Costco a strong buy? ›
Costco now has 73.4 million paid household members and 132 million cardholders. It's an encouraging sign that even amid inflation and as budgets tighten up, consumers are seeing enough value in Costco's membership to sign up. That bodes well for the company's growth prospects this year and beyond.
What stock will boom in 2024? ›
2024's 10 Best-Performing Stocks
| Stock | 2024 return through March 31 |
|---|
| SoundHound AI Inc. (SOUN) | 177.8% |
| Vera Therapeutics Inc. (VERA) | 180.4% |
| Avidity Biosciences Inc. (RNA) | 182% |
| Arcutis Biotherapeutics Inc. (ARQT) | 206.8% |
6 more rowsApr 1, 2024
On a historic basis, Costco has generated cash flow growth of 14.1%, and is expected to report cash flow expansion of 10.4% this year. Investors should take the time to consider COST for their portfolios due to its solid Zacks Rank rating, notable growth metrics, and impressive Growth and VGM Style Scores.
What are analysts saying about Costco stock? ›
Snapshot
| Average Recommendation | Overweight |
|---|
| Average Target Price | 776.54 |
| Number Of Ratings | 38 |
| FY Report Date | 8/2024 |
| Last Quarter's Earnings | 3.71 |
6 more rowsBut I believe that Costco's P/E ratio could actually contract because of how expensive it is right now, and this creates downside risk for investors. Don't expect the $1,000 mark to be met in 2024. And for investors who are drawn to the business, it's best to practice patience and wait for a better valuation.
Why is Costco a good long term investment? ›
It's a sales and profit-generating machine that works beautifully. But the secret to long-term growth is Costco's expansion opportunities. It only operates 874 stores worldwide, including 602 in the U.S., a much lower count than the traditional or discount supermarket chain. It's aiming to open about 30 a year.
What is Costco stock return for 10 years? ›
Ten Year Stock Price Total Return for Costco Wholesale is calculated as follows: Last Close Price [ 715.46 ] / Adj Prior Close Price [ 92.60 ] (-) 1 (=) Total Return [ 672.6% ] Prior price dividend adjustment factor is 0.81.
How safe is Costco stock? ›
With Costco stock trading at a 50% premium to its long-term average valuation, I believe that it is easily overvalued today for those looking to start a position. Therefore, I'd say that there's no margin of safety with Costco stock.
Should I buy Costco or Walmart stock? ›
While Costco appears to have the best growth prospects, that isn't enough to make it the best investment. Walmart trades at a lower valuation, and its higher dividend yield means you will receive more in dividend payments than you would on the same amount of money invested in Costco. That makes Walmart the winner.
Is Costco a good dividend stock? ›
Costco stock is always expensive
Costco's dividend yield is tiny at 0.5%, largely thanks to its long history of successful growth. Value investors and those trying to maximize the income they generate probably won't find it attractive.
Is Walmart or Costco a better stock? ›
While Costco appears to have the best growth prospects, that isn't enough to make it the best investment. Walmart trades at a lower valuation, and its higher dividend yield means you will receive more in dividend payments than you would on the same amount of money invested in Costco. That makes Walmart the winner.
How much will Costco stock be worth in 10 years? ›
Long-Term Costco Stock Price Predictions
| Year | Prediction | Change |
|---|
| 2027 | $ 1,183.45 | 66.80% |
| 2028 | $ 1,403.51 | 97.81% |
| 2029 | $ 1,664.48 | 134.60% |
| 2030 | $ 1,973.98 | 178.22% |
2 more rowsInvestors should understand Costco's business model before investing in the company's stock because it is a very real risk given current trends.
