Costco Stock Analysis: Why COST Shares are a Strong Buy for Long-Term Investors

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Costco Wholesale Corporation is central to the global warehouse membership club story. The company was founded in 1983 by Jim Sinegal and Jeffrey Brotman but its history dates back to 1976 because of the merger with Price Club. Costco, originally known as Costco Companies, quickly grew in its first two years and became the 1st company to go from $0 to $3 billion in revenue within the 1st 3 years. The world’s second-largest economy has “very good potential” for Costco expansion, CFO Rich Galanti told CNBC.

  1. Additionally, in 2023 the company ventured into China for the first time and has already expanded to five stores in the country.
  2. We’d like to share more about how we work and what drives our day-to-day business.
  3. But there’s a good case to be made that the stock deserves to trade at a premium because of its track record and resilience.
  4. And some say it’s a pretty good deal, all things considered.
  5. First-quarter net income jumped 16% year over year to $1.59 billion, and Costco’s profits have been on a steady uptrend for the last 10 years.

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. With its shares up by a solid 48% year to date in 2023, Costco’s narrative is about more than just the special dividend. Since its founding in 1983, the company has pioneered a unique membership-based retail business model.

Should I invest in Costco?

It keeps costs low by buying items in bulk, streamlining selection, and simplifying store layouts to pass on savings to consumers, who pay an annual fee to access its stores. Truist hoisted its price target on Costco to $693 from $619 and maintained a buy rating on the shares. The company reported “solid” sales growth that continues to be driven by lower-margin consumables. Still, Costco’s pricing model allows the company to maintain strong margins, the firm wrote Friday. Truist said a membership fee increase is unneeded at the moment.

Valuation

Perhaps, that’s even an understatement, if the mob scene outside the recent opening of the first Costco in Shenzhen is any indication. Six warehouse stores in all of mainland China do not seem to be anywhere close to being enough. It’s not all bad, as non-members who borrow cards to shop at Costco are still paying customers. On the other hand, it’s understandable that Costco wants to crack down on unauthorized membership card sharing. If you could have invested the full $1,000 (with one fractional share), your total return, including dividends, would be roughly 465%. That would make the initial investment worth around $4,650 as of July 10, 2023.

In July 2013, Costco stock traded at around $113 per share. An initial investment of $1,000 would have bought eight shares (with some money left over). As of July 10, 2023, those eight shares would be worth more than $4,200. In 2022, Costco reported more than $5.8 billion in net income. Sure, the company’s revenue was almost $227 billion, resulting in a net profit margin of only 2.6%.

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The big attraction for customers — and one of the most important components of Costco’s moat — is its price structure. As the third-largest retailer in the world, Costco is able to negotiate low prices for the products it sells. The more members it gains, the more negotiating power it has.

As of the year-end calendar 2022, the company operated more than 840 stores and was on track to open new stores in the coming years. Total revenue in 2022 topped $226 billion, the company employs more than 304,000 individuals and it is a member forex arbitrage software of the S&P 500, the S&P 100 and the NASDAQ 100. The announcement marks Costco’s fifth-ever special dividend and a record for its largest ever, Yahoo! Finance reported. Costco previously paid out dividends in 2012, 2015, 2017 and 2020.

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Costco Wholesale same store sales rose 10% in the month of November. Costco Wholesale shares climbed by 0% in the first day of trading following the news. Costco Wholesale announced a quarterly dividend on Thursday, January 18th. Stockholders of record on Friday, February 2nd will be given a dividend of $1.02 per share on Friday, February 16th. This represents a $4.08 dividend on an annualized basis and a dividend yield of 0.59%.

Costco Wholesale Corp.

The company’s dividend payout ratio stands at less than 30%, indicating significant financial flexibility to raise dividends in the future. Yes, Costco pays a dividend, https://bigbostrade.com/ though its dividend yield of less than 1% isn’t very impressive. However, there are other things for investors to like about Costco’s dividend program.

You’ll have to pay 1.2x sales for the stock today, or about double the rate for Walmart or Target. That big premium applies to Costco’s price-to-earnings ratio, as well. Shares are priced at nearly 50x profits, compared to Walmart’s 27x.

Costco Wholesale Corporation was founded in 1976 and is based in Issaquah, Washington. With a forward price-to-earnings (P/E) ratio of 43, Costco stock is significantly more expensive than the S&P 500 average of 26. And this is a high price tag for a mature company with a slow-and-steady approach to growth.

The Motley Fool has positions in and recommends Costco Wholesale. The company reported Cyber Week sales were up in the mid-teens year-over-year. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.