Over the last six months, Costco’s shares have sunk to $939.83, producing a disappointing 6.3% loss - a stark contrast to the S&P 500’s 11.8% gain. This might have investors contemplating their next move.
Given the weaker price action, is now a good time to buy COST? 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 Positive Attributes:
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 6.6%.
2. Economies of Scale Give It Negotiating Leverage with Suppliers
With $293.6 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 it’s harder to find incremental growth when you’ve penetrated most of the market. For Costco to boost its sales, it likely needs to adjust its prices or lean into foreign markets.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Costco’s sales grew at a mediocre 7.6% 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. After the recent drawdown, the stock trades at 43.1× forward P/E (or $939.83 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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