GS - What's going on with Costco (COST) share price?
2024-06-06 12:28:12 ET
The warehouse giant reported revenue of $58.5 billion for Q3 2024, marking a 9% year-over-year increase.
Additionally, diluted earnings per share (EPS) surged by 29% to $3.78, surpassing Wall Street analysts’ expectations.
These strong results have led to Costco’s shares trading at $843.28 at the time of writing.
Decade-long growth trajectory with no annual sales decline
Over the past decade, Costco has maintained an annualized revenue growth rate of 8.5%, showcasing a stellar track record without a single annual sales decline.
This consistent operational success underscores the company’s robust business model and its ability to thrive even in challenging economic environments.
In the latest fiscal quarter, same-store sales rose by 6.6%, reflecting Costco’s ability to attract more customers despite inflationary pressures.
The increase in customer traffic was a significant driver of this growth, demonstrating Costco’s strong value proposition to budget-conscious consumers.
Membership model fuels customer loyalty and financial stability
Costco’s membership-based business model plays a crucial role in its sustained success. The company currently boasts 74.5 million member households, a 7.8% increase from the previous year. These members pay annual fees for the privilege of shopping at Costco, finding the savings they achieve make the membership worthwhile.
This model not only ensures customer loyalty but also provides a steady stream of revenue.
Costco’s strategy of buying merchandise in bulk from vendors allows it to secure favorable pricing, passing on these savings to its shoppers.
This competitive edge makes it challenging for rivals to compete effectively, solidifying Costco’s position as the world’s third-largest retailer with trailing-12-month net sales of nearly $250 billion.
Stock performance and market outlook
Costco’s financial success has made it a top pick among investors.
Over the past five years, Costco shares have soared 241%, significantly outpacing the Nasdaq Composite’s 125% rise over the same period.
This impressive performance has resulted in a high valuation, with the stock trading at a price-to-earnings (P/E) ratio of 50.5. Since June 2019, the P/E multiple has surged by 72%, reflecting the market’s bullish sentiment toward Costco.
Analysts remain optimistic about COST’s prospects
Goldman Sachs (NYSE: GS) has maintained a ‘Buy’ rating, setting a 12-month price target of $851.
Stifel analysts have also set a price target of $850, citing Costco’s annuity-like membership income and above-peer comparable growth as key factors justifying the premium valuation.
However, they caution that potential risks include competition from Amazon.com Inc (NASDAQ: AMZN) and other e-commerce retailers, slowing macroeconomic trends, increased competition in the warehouse club sector, lower membership renewal rates, and foreign exchange pressures.
The post What's going on with Costco (COST) share price? appeared first on Invezz