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Costco sales have accelerated since 2020, and the stock has tripled in value.
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International expansion, e-commerce, and nonfood sales are long-term opportunities.
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However, the stock trades at a historically high valuation, which could limit upside from here.
Shares of Costco Wholesale (NASDAQ: COST) have significantly outperformed the broader market, soaring 200% over the last five years. This roughly doubles the S&P 500‘s return over the same period. Since reaching a 52-week high of $1,078 earlier this year, the stock has pulled back to $970 as of July 11.
Costco’s sales accelerated following the pandemic, and that momentum continued over the past few years. Between fiscal 2010 and 2019, revenue grew at an annualized rate of about 8%.
But from fiscal 2019 through fiscal 2024, sales have increased close to 11% per year. This fueled investor enthusiasm for this world-class retail business, especially given that Costco still has a lot of opportunities to expand through e-commerce and nonfood sales.
But the stock isn’t cheap and trades at a high earnings multiple. With shares hovering around $1,000, is Costco still worth buying — and, more importantly, can a new investor buying shares today expect a good return in the long run?
Costco has a wide competitive moat that protects the business from rival retailers stealing customers away. It earns most of its profit from annual fees from nearly 80 million paying households and growing. This allows management to sell food and other merchandise at rock-bottom prices, and this successful formula is still fueling the company’s expansion after four decades.
It ended the recent quarter with 914 warehouses worldwide, which is not that many in the context of big-box retail. Even Home Depot has over twice that many stores. Costco is still opening new locations, currently targeting high-quality markets like Sweden, Japan, South Korea, and Canada. It plans to open 24 net new warehouses for the August-ending fiscal year.
Global expansion is just one growth opportunity. The chain is also seeing double-digit annual percentage gains from online sales. E-commerce increased nearly 16% year over year last quarter. This boost is not only fueling Costco’s overall sales, but management is also still squeezing more profit out of the e-commerce business, which could benefit bottom-line earnings over the long haul.
Another opportunity is non-food sales. For example, the company experienced significant demand last year for gold and silver, which boosted revenue.