In This Article:
Over long periods of time, investing in stocks can lead to magnificent gains. That's exactly what Costco (NASDAQ: COST) has done for its investors.
In the past 30 years, shares have returned 13,300%, including dividends. That gain would have turned a $10,000 investment into more than $1.3 million today (as of April 16). This performance absolutely crushes the S&P 500.
To gain a better appreciation for what Costco has accomplished for investors, it's worthwhile to look at its history. Then, with a fresh perspective, we can determine if this unstoppable retail stock makes for a no-brainer buy right now.
Scaling up the business
Costco's business model hasn't changed over the years. About 30 years ago, the company operated 200 warehouse locations, generating $15 billion of net sales in fiscal 1993. Costco currently has 876 warehouses open, raking in $238 billion in net sales in fiscal 2023.
This has been a story about a business that has scaled up its operations in a tremendous fashion. Three decades ago, the company's executive team figured out that low prices on high-quality merchandise in a no-frills shopping environment are what every customer wanted. So, they invested aggressively in expanding domestically and internationally. It's a repeatable and proven playbook that is still in force today.
The result of this strategy has been rising sales and earnings. This business is consistently profitable, giving it the ability to pay one-time special dividends every few years. The most recent payout of $15 per share was announced last December, boosting investor returns.
Costco is currently the world's third biggest retailer, behind only Walmart and Amazon. It has 73 million member households that pay annual fees to have the right to shop at the company's warehouses. This helps generate a predictable and recurring high-margin revenue stream.
A company that has become as dominant as Costco benefits from some competitive strengths. In this case, the business possesses a powerful scale advantage. Because it buys merchandise in such massive quantities, it is able to obtain favorable pricing on goods, savings that are constantly passed on to customers.
Even with the rise of online shopping, Costco has been able to open new locations, grow revenue and net income, and add new members. This makes me believe that the company's competitive position is insulated from the threat of disruption, whatever that may look like.
Past results don't resemble forward returns
As of this writing, Costco carries a market cap of $316 billion, which makes it the world's 29th most valuable business. Add this to its monster sales base, and I'm positive that forward returns aren't going to come anywhere near what they've reached in the past.