Shares in Costco (NASDAQ: COST) are up 229% over the past five years, delivering the kind of growth usually reserved for technology stocks. The company ranks fifth among the world’s largest retailers, including some of its biggest rivals Walmart And Amazon.
Still, Costco appears to have plenty of room to run. The retail giant’s share price has skyrocketed more than 92,000% since its initial public offering in 1985, likely creating more than a few millionaires. However, the company has only just begun its expansion abroad and has adopted a lucrative subscription-based model.
So it’s not too late to make a long-term investment in this retailer and take advantage of its future. This is why Costco is still a millionaire stock worth considering right now.
The power of a subscription-based model
Retail can be a tricky industry, with many companies experiencing lower profit margins than other industries. However, Costco has found a way around that, with its business relying more on memberships than product sales.
In a strategy similar to Amazon’s Prime subscription, which has also seen exponential success, access to a Costco location requires shoppers to pay for an annual membership. While requiring consumers to pay to enter a supermarket could have gone very wrong for the company, the opposite has happened.
Costco has attracted millions of consumers over the years, enamoring them with access to quality products at wholesale prices, all for a low annual fee. The company’s commitment to this model has helped it amass nearly 75 million paid memberships, a figure that rose 8% year over year in the last quarter, the first quarter of fiscal 2024. Meanwhile, Costco has a 90% renewal rate worldwide %.
Costco’s success over the years has seen its financial numbers skyrocket, with this chart showing how the company’s annual revenue, operating profit and free cash flow have grown since 2019.
Costco’s fiscal 2023 earnings best reflect the company’s winning membership model and its positive impact on the bottom line. The retail company made profits of more than $6 billion during the year, with membership fees accounting for 73% of that.
Costco stock is worth the premium price tag
Costco almost always trades at a premium, evidenced by its high price-to-earnings (P/E) ratio of 53. This figure is higher than many of its rivals, using the same benchmark for Walmart and Goal at 28 and 15. Even Amazon’s is lower at 40.
However, I would argue that Costco is worth its price tag for investors willing to hold on for the long term. The above data shows that Costco has outperformed all of these companies in terms of stock growth over the past five years. Additionally, Amazon has beaten its fellow retailers in annual sales and operating income growth.
Moreover, Costco has only just begun its expansion abroad, which will likely continue to boost profits for years to come. The company operates 876 locations in 14 countries. However, Costco has six or fewer stores in six of these countries, which represents enormous growth potential. Not to mention the many regions the company has yet to enter.
For example, Costco opened its first location in China in 2019 and the second in 2023 after being held up by the COVID-19 pandemic. Yet the company already has six stores in the East Asian country and has barely scratched the surface.
In France it is a similar situation. There are only two Costco warehouses in France, one of which opened last year, and both are located near Paris. However, significant expansion potential remains in the European country and in many other countries.
In the third quarter of 2023, international sales increased 9% year over year, exceeding domestic sales growth by approximately 2%. The segment will likely continue to outperform domestic sales in the long term as Costco remains on its current growth trajectory.
In addition to a solid growth history and a winning business model, Costco is a stock that could make you a millionaire if you’re willing to wait.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Costco Wholesale, Target, Walmart, and Walt Disney. The Motley Fool has a disclosure policy.
Could Costco be a millionaire maker stock? was originally published by The Motley Fool
