Costco Wholesale (NASDAQ: COST) continues to impress investors, and its stock keeps climbing. It did take a small step back after fiscal fourth-quarter earnings, but it's up 35% this year, outpacing the S&P 500.
That means it also stepped back from trading above $900. But knowing Costco, it won't stay down for long. How quickly can the warehouse retailer's stock reach a four-digit price tag?
Headwinds and tailwinds
Costco operates a differentiated retail model that charges membership fees in exchange for rock-bottom prices. It has huge, warehouse-style stores with low expenses, and it resorts to maneuvers like placing pallets straight into aisles, instead of workers removing products and placing them neatly on display shelves.
Rather than turning off shoppers, this model brings them in. I don't really need to explain why, since many readers probably shop there. It's fun and efficient, and most importantly, it's cheap. If you shop there enough, your savings could seriously outweigh the price of an annual membership (which recently went up to $65), or even the price of the executive membership (which now costs $130).
Don't take my word for it. Costco reports consistently stellar renewal rates and membership increases. U.S. and Canada renewals were 92.9% in the 2024 fiscal fourth quarter (ended Sep. 1), and international rates were 90.5%. Paid memberships increased 7.4% in the quarter to more than 76 million. Within that grand total, executive memberships increased 9.6% to 35.4 million. That's an important growth booster because executive members accounted for nearly three-quarters of Costco's global sales in the quarter.
E-commerce has emerged as a major part of Costco's business. As the world embraces the omnichannel model, shoppers are taking advantage of Costco's platform. E-commerce sales increased 18.9% year over year in the quarter.
The strong membership metrics trickled down to robust net income. Earnings per share (EPS) increased from $4.86 last year to $5.29 this year, beating analyst estimates, but revenue growth of 1% to $78.2 billion came in below analysts' expectations.
Costco stock's never been this high
Costco stock has been a market-beating stock practically forever, but it's never reached a four-digit price tag. It has split its stock four times in the past, which is why it hasn't reached that milestone despite incredible gains over its lifetime. The last time it split was in 2000.
There's a chance that Costco will split its stock before it gets to $1,000. So while the value will theoretically be there, in actual price per share, it wouldn't.
On a split-adjusted basis, one Costco share was worth $1.67 at the initial public offering price. At today's levels, each of those shares -- not split-adjusted and including dividends -- would be worth $253,172.
It shouldn't take too long
Costco stock has traded for a premium valuation for a long time, objectively and as compared with its peers. However, it's reached new heights lately, well above its five-year average. Just like its customers crave premium memberships, investors want Costco stock even at a high cost.
COST PE Ratio data by YCharts.
To reach $1,000 from its current price of nearly $900, Costco stock would gain about 12%. That's very doable for Costco, and quickly. It's up more than that over the past six months, and that includes the recent pullback.
It could be that investors are going to be a bit more cautious about Costco over the next little while, considering its revenue miss and high valuation. But Costco stock could soar again if lower inflation means shoppers begin spending more, and also when the effect of fee hikes hits Costco's coffers starting in the upcoming 2024 fiscal first quarter. While there could be some delays, it shouldn't be too far off from now.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
