Costco Wholesale Corporation (COST, Financial), has been a great growth stock for investors to hold over the past few months. The company has managed to record stunning growth and the company still has more room to grow. The company has managed to report good growth despite the act that the strength of the U.S. dollar has weighed down the company's margin.
During the second quarter of fiscal 2015, the company reported earnings of $1.35 per share representing a 29% year-over-year growth. This was on the back of 4.3% year-over-year revenue growth. However, during the last three months, the stock has registered a decline of around 4%, currently trading at lower than 200DMA.
Quarterly numbers
Amid Q3, Costco's growth in sales and same-store sales highlight the company’s impressive growth potential. Net sales were up 1% to $25.52 billion while same-store sales slid by just 1%. In the event that gas collapse and currency headwinds were being disregarded, comps would have expanded by 6%. Regardless of the late U.S. shopper spending non-abrasiveness that has been an agony to numerous retailers, Costco appear to be adapting to it nicely.
Membership fee came in at $584 million while recording a 4% expansion contrasted with past Q3. As far as participation, Costco's replenishment rates are presently at 91% in the U.S. also, Canada and 88% around the world. Subsequent to opening two new stores in Korea and Japan each, the organization has seen likewise seen an increment in number of official participation. The quantity of Goldstar individuals expanded from 32.7 million to 33.2 million in Q3. This metric is particularly critical as Costco makes the dominant part of its profits through the sales of its memberships.
Competition headwinds
Costco needs to make the right moves in order to fight off competition in the online space. While it has enhanced online sales by 18% this quarter and has arrangements to branch into different nations, it will be hard to go up against organizations like Amazon.com (AMZN, Financial) and Alibaba (BABA, Financial). Most individuals would even now incline toward shopping at its block and mortar stores to show signs of improvement mass arrangements and rebates. Hence, investors should keep a close eye on Costco’s online growth initiatives. The company needs to make the right moves in order to compete against the e-commerce giants, which currently pose a headwind.
Valuation and conclusion
The stock trades at a trailing P/E of 28.55x and forward P/E of 25.50x. This shows that analysts are expecting Costco’s earnings to grow despite the increasing strength of the U.S. dollar. In addition, analysts also expect Costco’s earnings to grow at a CAGR of 10% for the next five years.
The company has managed good growth and has a healthy renewal rate, making it a safe investment for the long term. Although the company may face struggle to compete in the online space, it has made the right moves to ensure future growth. Hence, in my opinion, Costco is a buy.
