Where Will Costco Stock Be in 3 Years?

Costco Wholesale's (COST) stock has increased significantly, achieving nearly an 80% rise over the past three years, while the S&P 500 has only grown around 30%. This impressive performance can be attributed to Costco's ability to consistently deliver growth and navigate economic challenges effectively.

The question now is whether Costco can maintain its lead over the market in the coming three years. In this article, we will look at Costco's business model, anticipated growth rates, and overall valuations to evaluate its future potential.

The Performance of Costco in Recent Years

Costco uses its large scale to purchase and sell products at lower prices compared to many traditional retailers. Customers are also encouraged to buy in bulk to reap savings.

Costco can afford to maintain low product margins because it operates as a members-only warehouse club, with much of its profit derived from membership fees. Additionally, the company continues to expand by opening more warehouses, which helps attract new customers.

Costco's core business is likely to remain strong as long as it keeps increasing comparable store sales, adding new members, achieving high membership renewal rates, and opening additional warehouses. Below is a summary of key metrics from the last three fiscal years:

Metric	Fiscal Year 2022	Fiscal Year 2023	Fiscal Year 2024
Adjusted comps growth	10.6%	5.2%	5.9%
Total cardholders	118.9 million	127.9 million	136.8 million
Worldwide renewal rate	90.4%	90.4%	90.5%
Total warehouses	838	861	891

Data indicates that Costco raised its membership fees for the first time in seven years in September. These increases should help counteract inflation, reduce logistics costs related to e-commerce, and accommodate recent wage raises in the United States and Canada.

Costco's Expected Future Performance

Looking ahead, Costco plans to open 29 new stores in fiscal 2025, including three relocations, with 12 of those in the U.S. The company anticipates beginning to realize the benefits of its higher membership fees in the latter half of the year.

From fiscal 2024 to fiscal 2027, analysts project Costco will experience a revenue growth rate of around 7% annually, while earnings per share (EPS) could rise by about 10% annually. This steady outlook suggests that Costco will continue to be a reliable investment as it grows its same-store sales, attracts new members, and opens additional locations.

For comparison, analysts expect Walmart, which competes with Costco through its Sam's Club, to see revenue growth of about 5% annually and EPS growth of 17% from fiscal 2024 to fiscal 2027 (ending January 2027).

Valuation Considerations for Costco

Although Costco's core business appears robust, its stock is currently valued at 56 times this year's earnings, which is quite high. In contrast, Walmart's stock trades at 40 times this year's earnings, and its smaller competitor, BJ's Wholesale, is valued at only 25 times this year's earnings.

Supporters of Costco will argue its higher valuation is justified due to its strong market position, robust defense against macroeconomic challenges, and steady growth prospects. Conversely, skeptics may believe Costco's current high valuation reflects a recent shift towards secure investments and a rally fueled by expectations of falling interest rates. Additionally, Costco's low forward dividend yield of 0.5% might not attract significant interest from income-focused investors.

Is Now the Time to Invest in Costco?

Costco is often considered a solid long-term investment, but its current price reflects optimistic expectations. Potential investors are encouraged to gradually build their positions in Costco's stock yet should be prepared for possible price declines during market fluctuations over the next three years.

Costco, stocks, growth