E Is High-Growth Costco A Good Investment Right Here?

Costco Wholesale Corporation (ticker: COST ) has turned from a startup in an airplane hangar into one of the biggest players in the warehouse retailing industry. Investors who bought early on were able to capitalize on massive total returns, and Costco continues to grow at an attractive pace.

The company’s strong history is not a result of pure luck, but rather the result of great management, especially Costco’s CEO Craig Jelinek has been a factor for Costco’s very convincing long-term growth.

Company Overview          

Costco operates more than 760 warehouses (in the US and Canada) that gross more than $150 billion in sales a year. Costco is thus, by revenue generation, one of the biggest retailers in the US. The company, which was established in 1983, is currently valued at $87 billion.

Costco has reported its first quarter (fiscal 2019) earnings results on December 13. The company was able to generate revenues of $35.1 billion during Q1, an increase of 10.3% compared to the prior year’s quarter. Earnings-per-share totaled $1.73, an increase of 19% compared to the prior year’s quarter. Costco was also able to grow its comparable store sales at a massive pace of 7.5% during the quarter.

Growth Prospects      

Costco has a very strong growth track record, over the last decades its revenues and profits grew very consistently. Costco’s earnings growth is based on several factors: The company continues to open new warehouses, while at the same time the sales at its existing warehouses continue to rise. These rising comparable store sales are possible thanks to price increases (inflation) and a rising customer count. Rising comparable store sales allow Costco to generate increasing gross profits per location, while fixed costs (per warehouse) remain constant. This (theoretically) allows for rising margins, but Costco chooses to pass on fixed cost savings to consumers in many cases, which means that its margins do not grow every year. The low selling prices for its goods, in turn, lead to more traffic at Costco’s warehouses, which helps drive comparable store sales and revenues.

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Thorgood 9 months ago Member's comment

One of the few retailers that can stand up to Amazon. I am long.