As the trend of big retailers becoming one-stop shops continues, there is one place that stands out for its ability to fill up not just your shopping cart and gas tank, but also your heart – Costco Wholesale. Despite the ever-growing competition, Costco remains a stock that is still worth owning.
Since our recommendation in late December, Costco (ticker: COST) has delivered a remarkable return of 24%, including reinvested dividends. This outperforms the S&P 500’s 20% and the SPDR S&P Retail exchange-traded fund’s 14%. The factors driving this impressive performance, such as the loyalty of its bargain-hunting customers and high membership renewal rates, are expected to continue supporting its growth.
According to Oppenheimer analyst Rupesh Parikh, “Costco has one of the most defensible moats in all of retail.” In light of this, he raised his price target on the shares from $575 to $630. What sets Costco apart from its peers are its attractive everyday low prices, distinctive offerings in big-ticket categories, fuel options, and other perks of a Costco membership, including an appealing cash-back credit card.
Costco’s ability to stand out has become even more vital as inflation heightens the focus on consumer budgets. While cooling costs may provide shoppers with a little more flexibility, most consumers will continue to prioritize value, which is where Costco excels. The company consistently receives high marks for its low prices.
Even as retail sales slow down from the accelerated growth witnessed during the pandemic, Costco has managed to maintain surprisingly resilient monthly same-store sales readings. Although June saw the toughest comparative figures for the year, the decline was primarily influenced by a decrease in gasoline prices.
In summary, Costco Wholesale remains a standout choice in the retail industry. Its exceptional ability to offer competitive prices, unique product offerings, fuel options, and other attractive membership benefits make it a stock worth considering for investors. With its consistent track record and resilient performance, Costco continues to be a driving force in the retail sector.
Costco’s Dominance in the Retail Sector
Costco continues to dominate the retail sector, maintaining its position as a consistent leader. It’s worth noting, however, that the company’s stock is rarely available at a cheap price. Currently, it is trading at 37 times forward earnings, which is above its five-year average of 34 times. Despite this, other successful retailers such as Walmart and Lululemon Athletica are also commanding premiums in today’s market. This trend is occurring despite some obstacles faced by the broader sector, including the high cost of living, the resumption of student loan repayments, and a post-pandemic preference for experiences over material goods. Considering the earning potential they offer, Costco’s shares are reasonably priced.
Consumer confidence is on the rise as inflation retreats. This could lead to stronger sales for Costco during the crucial back-to-school and holiday shopping seasons. Stifel’s research indicates that consumers across all income levels plan to increase their spending on discretionary items in July. This positive trend has continued for three consecutive months. Additionally, there are optimistic implications for higher-income consumers, who are the target market for Costco. Analyst Mark Astrachan believes that this data reinforces his belief that Costco is well-positioned to gain further market share in the increasingly competitive U.S. spending environment.
There are additional factors that could potentially boost Costco’s stock. An increase in membership fees or a declaration of another special dividend by the company could have a positive impact. Even without these factors, Costco’s earnings per share are projected to rise by more than 8% this year and next, driven by a mid-single-digit increase in sales.
It seems that slow and thrifty approaches continue to deliver success for Costco.