There are a handful of giants in the retail world, with Walmart and Amazon as the household names leading the way. Walmart stores are accessible to the vast majority of the American population, and Amazon is the undisputed e-commerce king, but neither runs the warehouse memberships like Costco (COST 2.14%).
Costco’s stock hasn’t gotten as much attention as tech or artificial intelligence (AI) stocks over the past few years. Still, it has outperformed all major indexes and every “Magnificent Seven” stock not named Nvidia or Alphabet over the past five years.
But while past success is nice, future success matters. Where will Costco and its stock be in five years?
Image source: The Motley Fool.
Embracing different property styles to remove expansion barriers
Costco’s memberships are growing — which is a good thing, no doubt — but one downside is overcrowded stores in high-volume areas. To help with the issue (and overall growth), Costco is pursuing an aggressive expansion plan, aiming to open at least 30 new stores annually.
For your average city, it’s a straightforward process once you find space for it (Costco aims for at least 25 acres). In high-density cities like New York City and Los Angeles, space isn’t readily available to build large Costco stores, so the company is embracing mixed-use properties that deviate from its traditional designs but allow it to capitalize on high-income areas.
Costco is currently building its first mixed-use property in Los Angeles, with apartment buildings atop the warehouse, and the company says such properties should increase foot traffic. If these mixed-use stores in high-density areas prove effective, the burden of space will become less meaningful for Costco’s physical footprint. It currently has 28 stores in its pipeline for this year.
Today’s Change
(-2.14%) $-22.47
Current Price
$1027.98
Key Data Points
Market Cap
$456B
Day’s Range
$1025.19 – $1044.90
52wk Range
$844.06 – $1096.50
Volume
104.4K
Avg Vol
1.9M
Gross Margin
12.93%
Dividend Yield
0.52%
Making China a major part of its international expansion
Costco currently has 924 warehouses, most of which (634) are in the U.S. The company has seven stores in mainland China that essentially serve as initial trial runs for the company. Now, it’s planning to make China a larger part of its international growth plans.
Costco’s U.S. growth is modest, but its international growth is much faster. In its fiscal second quarter (ended Feb. 15), comparable U.S. sales increased 5.9%, while international sales increased 13%. China won’t be a magic market that skyrockets Costco’s growth, but if it plays out how Costco plans, it will be a significant part of the company’s international growth going forward.
COST Revenue (Quarterly) data by YCharts
So, where will the stock be in five years?
I can’t predict how any stock will perform, but if Costco’s business continues to thrive at its current level, it’s safe to assume the stock will reward it accordingly.
The one issue with the stock is that it’s currently expensive (a nearly 56 price-to-earnings ratio recently), which means it’s at higher risk of a pullback or slowdown if investors become impatient with the company’s progress. However, for long-term investors, the stock is a buy.
Costco has found its place in the retail world and is building brand equity daily.
