Stocks Costco Wholesale(NASDAQ: Cost) It has surpassed the broader market, and has risen 200% over the past five years. This is almost doubled S&P 500Return to the same period. Since reaching a 52-week high of $1,078 earlier this year, the stock has returned to $970 as of July 11th.
Costco sales continued after the pandemic, and its momentum continued for the past few years. Between 2010 and 2019, revenue increased by approximately 8% per year.
However, sales increased by nearly 11% per year from 2019 to 2024. This investor enthusiasm for this world-class retail business, especially given that Costco still has many opportunities to expand through e-commerce and non-food sales.
However, inventory is not cheap and trades at high prices Double the revenue. Is Costco still worth buying as the stock is around $1,000? More importantly, can new investors buying stocks today expect good returns in the long term?
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It’s spacious for Costco A competitive moat This protects your business from rival retailers who steal customers. It has grown, earning a large portion of its profits from annual fees from households with almost 80 million paying. This allows management to sell food and other products at rock bottom prices, and this successful formula is still driving the company’s expansion in 40 years.
The most recent quarter ended with 914 warehouses worldwide. This isn’t that much in the context of major retailers. flat Home Depot There are more than twice that number. Costco is still opening new locations and is currently targeting high-quality markets such as Sweden, Japan, Korea and Canada. We plan to open 24 new online warehouses in the fiscal year ending August.
Global expansion is just one of the opportunities for growth. Additionally, the chain has seen a double-digit annual percentage increase from online sales. E-commerce rose nearly 16% year-on-year from the previous quarter. This boost not only drives Costco’s overall sales, but also potentially profits on the bottom line over the long term as management still weighs more profits from the e-commerce business.
Another opportunity is non-food sales. For example, the company experienced significant demand for gold and silver last year, making revenues.
This highlights another advantage. Identifying exciting new items to please Costco customers and return. It reported double-digit sales growth in several non-food categories in the last quarter, including gems, toys and household items.
For investors looking at stocks, the only problem is their expensive valuations. Using this year’s consensus revenue estimates from Wall Street analysts, the stock trades at 54x advance revenue. This is far above the 26 forward price-to-return ratio (P/E) of the S&P 500.
Assuming the market is correct, Costco stocks are worth a high multiple, but it is still difficult to justify buying stocks right now. The current P/E is well above the 5-year average multiple of 44.
This high-rising rating has little room for error on the part of Costco. Two strengths of the past year – e-commerce and non-food sales – are slowing down sales momentum this year, which could lead to stocks drops or at least slowing down the S&P 500’s performance.
Total sales increased 8% year-on-year to the first three quarters of fiscal year 2025. Analysts expect revenue to increase at 9% per year over the long term.
Companies typically do not maintain high P/ES with single-digit revenue growth. It can lead to disappointing returns and you can pay a big premium to the S&P 500 P/E for a rather average growth outlook.
Certainly, Costco can grow for a long time due to its competitiveness, but I will wait for a more attractive price to make a long-term investment. At the current valuation, you should not expect to achieve returns that exceed the company’s long-term revenue growth.
Consider this before purchasing stocks at Costco Wholesale.
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John Ballard There is no position in any of the stocks mentioned. Motley Fools appeared on Costco Wholesale and Home Depot and recommended. To Motley’s fool Disclosure Policy.
