Is Costco Stock a Buy After Hiking Membership Fees? | The Motley Fool (2024)

Wholesale warehouse operator Costco Wholesale Corporation (COST 0.34%) has been a stunning success over the past thirty years. Its stock price performance has been noteworthy compared to all stocks, but especially so in comparison to retail stocks. Costco's focus on warehouses that save its customers time and money has been a stellar success. With the stock up over 2,500% since 2003, it is a proven winner. However, the company has experienced several changes in the last year, making this a great time to review Costco as a potential investment.

Changes in leadership and membership fees

Changes of note to customers and investors include a new CEO and updated membership fees. Effective Jan. 1, 2024, longtime CEO Craig Jelinek stepped down and was succeeded by Ron Vachris. This change should be considered a preservation of continuity, since the new CEO has been with Costco for over 40 years. He has been working closely with the outgoing CEO for nearly two years prior to assuming his new role. Investors should have no concerns about the continued competence of management.

The membership fee increases were the the company's first since 2017, and were were less expected. The increases will directly affect Costco's customers, raising prices by $5 and $10 per year at its two membership levels. People don't enjoy fee increases, of course, so this change at least has the potential to disrupt Costco's operations if they experience an overall decline in membership. However, given the generally high regard members have for Costco, and the relative in-frequency of membership rate increases in the past, it seems unlikely that the firm will lose many members due to the most recent price hike. Still, the potential exists, and investors must take such a chance into consideration when valuing Costco as an investment.

Costco continues to deliver stellar operating performance

The company reported solid earnings for the third quarter of its 2024 fiscal year. The earnings report showed growth across the board:

  • Net sales increased 9.1% to $4.79 billion
  • Net income increased $380 million, or 29%, to $1.68 billion
  • Comparable location sales were up 6.5% on an adjusted basis

Importantly, these quarterly results do not reflect the recent membership fee increase. The results do demonstrate that Costco's loyal customers continue to rely on the retailer under the company's new CEO. However, considering Costco stock is up over 2,500% since 2003, and 50% in the last 12 months, investors likely consider results like this baked into current share prices. Continued growth from these levels might require even more impressive growth.

New growth for Costco may come from international expansion

Given the importance of membership fees to Costco, investors must consider whether substantial growth in new members is possible or likely. With Walmart (NYSE: WMT) and Sam's Club, Target (NYSE: TGT), and Amazon (NASDAQ: AMZN) all also competing for much of the same customer base, particularly in the United States, a large increase in memberships seems unlikely over the next several years.

Increases in membership fees can add to Costco's top and bottom line. Since the company has previously stated that its member renewal rate is 90%, it seems unlikely that the company will lose a significant portion of its member base for $5 or $10 a year. This means the company should enjoy a boost in cash flows just from the recent increase.

To make more substantial increases, though, Costco is appealing to an entirely separate pool of potential members: The rest of the world outside the United States. In the 2023 fiscal year, Costco opened a total of 23 net new locations, 10 of which were outside of the United States. Clearly, Costco is moving with caution on its international expansion. This should be good news for investors. Management has proven to be a slow and steady winner for the past 30 or more years; there is no reason to doubt its ultimate success in expanding Costco's international presence.

In terms of valuation, Costco appears to be fully valued based on the business as it currently stands.

TickerPrice-to-Earnings RatioPrice-to-Free Cash Flow RatioDividend YieldDividend Coverage Ratio
COST36.167.00.71%3.9

Data source: YCharts.

Though the yield is not very large, the company pays a substantial dividend and it is very well covered, making it attractive to income investors. Growth investors with patience should consider adding shares of Costco. The dividend can help reward patient investors who hold shares while waiting for growth in international membership.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joseph Arroyo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.

Is Costco Stock a Buy After Hiking Membership Fees? | The Motley Fool (2024)

FAQs

What is the prediction for Costco stock? ›

Average Price Target

Based on 25 Wall Street analysts offering 12 month price targets for Costco in the last 3 months. The average price target is $910.05 with a high forecast of $1,061.00 and a low forecast of $676.00. The average price target represents a 11.31% change from the last price of $817.60.

What is the stock price forecast for Costco in 2024? ›

Costco Stock Price Forecast 2024-2025

Today, Costco traded at $855.67, so the price increased by 30% from the beginning of the year. The forecasted Costco price at the end of 2024 is $916 - and the year to year change +39%. The rise from today to year-end: +7%.

Will Costco stock reach $1000? ›

It will require a 16% gain for Costco's share price to breach four-figure territory. Since the stock has already climbed by twice this amount in the first half of 2024, I don't doubt it's possible for Costco to surpass $1,000 before the end of the year. Such a high stock price also makes Costco a stock-split candidate.

What is the stock price prediction for Costco in 2030? ›

Costco stock prediction for 1 year from now: $ 901.78 (10.52%) Costco stock forecast for 2025: $ 969.63 (18.59%) Costco stock prediction for 2030: $ 2,274.71 (178.22%)

Which are the best stocks to invest in 2024? ›

Top Long Term Stocks to Buy in 2024 Based on 5Y Avg Net Profit Margin
NameSub-SectorClose Price (Rs.)
Sun Tv Network LtdTV Channels & Broadcasters783.90
UTI Asset Management Company LtdAsset Management1,025.00
Oberoi Realty LtdReal Estate1,796.00
Five-Star Business Finance LtdConsumer Finance829.85
6 more rows
Jul 22, 2024

What is Kirkland stock forecast for 2025? ›

Kirklands Stock Prediction 2025

The Kirklands stock prediction for 2025 is currently $ 3.37, assuming that Kirklands shares will continue growing at the average yearly rate as they did in the last 10 years. This would represent a 93.44% increase in the KIRK stock price.

What is the highest Costco stock has ever been? ›

Historical daily share price chart and data for Costco since 1986 adjusted for splits and dividends. The latest closing stock price for Costco as of July 26, 2024 is 817.60. The all-time high Costco stock closing price was 885.59 on July 09, 2024.

Who holds the most Costco stock? ›

According to the latest TipRanks data, approximately 58.33% of Costco (COST) stock is held by retail investors. Vanguard owns the most shares of Costco (COST).

Will Kirkland stock go up? ›

Average Price Target

Based on 2 Wall Street analysts offering 12 month price targets for Kirkland's in the last 3 months. The average price target is $4.75 with a high forecast of $7.00 and a low forecast of $2.50. The average price target represents a 172.99% change from the last price of $1.74.

Is Costco over or undervalued? ›

Intrinsic Value. The intrinsic value of one COST stock under the Base Case scenario is 434.6 USD. Compared to the current market price of 817.6 USD, Costco Wholesale Corp is Overvalued by 47%.

Is Costco a high risk stock? ›

Costco Wholesale Corp has a volatility of 1.17 and is 1.77 times more volatile than Dow Jones Industrial. 10 percent of all equities and portfolios are less risky than Costco Wholesale. You can use Costco Wholesale Corp to protect your portfolios against small market fluctuations.

How much was Costco stock in 2008? ›

The closing price for Costco Wholesale (COST) in 2008 was $37.03, on December 31, 2008. It was down 23.8% for the year.

Will Costco stock go up in 2024? ›

While Costco shares jumped nearly 3% in premarket trading following the announcement, the price soon tumbled to $846.59 on Thursday, more than a 4% drop from its open at $890.76. Overall, however, the stock's price has climbed over 29% in the first half of 2024, with shares up over 60% from a year ago.

What will Costco stock be worth in 5 years? ›

Costco Wholesale Corp quote is equal to 817.750 USD at 2024-07-29. Based on our forecasts, a long-term increase is expected, the "COST" stock price prognosis for 2029-07-18 is 1318.668 USD. With a 5-year investment, the revenue is expected to be around +61.26%. Your current $100 investment may be up to $161.26 in 2029.

What is the future value of Costco? ›

10-year free cash flow (FCF) forecast
20252031
Levered FCF ($, Millions)US$7.46bUS$16.9b
Growth Rate Estimate SourceAnalyst x6Est @ 7.63%
Present Value ($, Millions) Discounted @ 6.1%US$7.0kUS$11.2k
Jul 17, 2024

Is Costco a dividend growth stock? ›

Costco Wholesale (COST) 5-Year Dividend Growth Rate : 12.10% (As of May. 2024)

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Lidia Grady

Last Updated:

Views: 5605

Rating: 4.4 / 5 (45 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Lidia Grady

Birthday: 1992-01-22

Address: Suite 493 356 Dale Fall, New Wanda, RI 52485

Phone: +29914464387516

Job: Customer Engineer

Hobby: Cryptography, Writing, Dowsing, Stand-up comedy, Calligraphy, Web surfing, Ghost hunting

Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.