Since March 2021, the S&P 500 has delivered a total return of 65%. But one standout stock has more than doubled the market - over the past five years, Costco has surged 177% to $973.55 per share. Its momentum hasn’t stopped as it’s also gained 6.3% in the last six months, beating the S&P by 7.6%.
Is now still a good time to buy COST? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does COST Stock Spark Debate?
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ: COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Two Things to Like:
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Costco has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.2%.
2. Economies of Scale Give It Negotiating Leverage with Suppliers
With $286.3 billion in revenue over the past 12 months, Costco is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth. To expand meaningfully, Costco likely needs to tweak its prices or enter new markets.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Costco’s sales grew at a tepid 6.9% compounded annual growth rate over the last three years. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Costco.
Final Judgment
Costco’s positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at 45.8× forward P/E (or $973.55 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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