Over the past six months, Costco's shares (currently trading at $916.15) have posted a disappointing 8.9% loss, well below the S&P 500's 14% gain. This may have investors wondering how to approach the situation.
Following the drawdown, is now the time to buy COST? Find out in our full research report, it's free.
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Costco has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.6%.
With $293.6 billion in revenue over the past 12 months, Costco is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. For Costco to boost its sales, it likely needs to adjust its prices or lean into foreign markets.
A company's long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Costco's sales grew at a mediocre 7.6% compounded annual growth rate over the last three years. This wasn't a great result compared to the rest of the consumer retail sector, but there are still things to like about Costco.
Costco's positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 42.4× forward P/E (or $916.15 per share). Is now the right time to buy? See for yourself in our in-depth research report, it's free.
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