Consumer demand for basic products such as food and cleaning products is persistent, but the sale of these goods is not a fast-growing activity. Retail is generally a slow-growing sector. Most retail traders’ stocks are performing accordingly.
However, there are some exceptions to this standard. Club based department store retailer Costco Wholesale (NASDAQ: COST) is one of them. It’s been a star performer since the 1990s, and there’s room for more of the same in the future.
Outgrows its competition
Costco stores offer many of the same products sold by competitors Walmart or Kroger, but with one notable exception. This means that only paying members of the club are allowed to shop at Costco. The annual cost starts at $60 per year, but can grow quickly with the addition of more benefits and authorized users.
The business model works: in the past ten years, the number of club members has grown from less than 40 million to more than 74 million, while the number of stores has expanded from 655 then to more than 870 today. Annual revenue has increased from $110 billion in fiscal 2014 to an estimated $259 billion for the fiscal year ending in August.
Perhaps most importantly, Costco shares rose 634% during that ten-year period. A $5,000 investment in the company would be worth about $36,700 today.
Costco is built for the impending future
Past performance is no guarantee of future results, and Costco’s growth trajectory is in question. The consumer goods retail arena used to be busy, and now it’s even busier.
As people’s shopping preferences evolve, they do so in ways that favor Costco. People are increasingly comfortable paying subscription fees to access goods and services, and are also increasingly value-oriented. The bigger Costco gets, the more value it can offer its customers, creating a cycle of demand-driven membership growth that in turn drives same-store sales growth. The future is bright for the uniqueness of Costco’s business.
Should You Invest $1,000 in Costco Wholesale Now?
Consider the following before buying shares in Costco Wholesale:
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James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
If you invested $5,000 in Costco stock ten years ago, here’s how much you’d have today. originally published by The Motley Fool
