Costco Stock Has Grown 2x S&P 500 So Far This Year: More Gains After Q4 Results?

Costco (NASDAQ: COST) is scheduled to report its fiscal fourth-quarter results on Thursday, September 5 (Costco’s fiscal year ends in August). We expect Costco stock to likely see little to no movement with revenues and earnings matching expectations in its fiscal fourth quarter. Costco’s stock has rallied 35% since the beginning of this year to $879, outperforming the S&P index which grew 18% during this period. In comparison, Costco’s peer Walmart’s (NYSE: WMT) stock has swelled almost 50% over the same period.

Costco has shown the ability to consistently grow revenues while focusing on improved customer experience – something that has helped the company thrive in the ever-changing retail landscape. Several club stores have been opened in the U.S. and the company is well-positioned for continued growth overseas, including in China. That said, the stock’s current valuation – at 54 times earnings  – is much higher than the 25 to 30 P/E range before the pandemic. The stock looks expensive at these valuation levels – making further gains challenging.

Admirably, COST stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 52% in 2021, -19% in 2022, and 49% in 2023. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has also outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could COST see a strong jump?

Our forecast indicates that Costco’s valuation is $850 a share, which is in line with the current market price. Look at our interactive dashboard analysis on Costco‘s Earnings Preview: What To Expect in Fiscal Q4? for more details.

(1) Revenues expected to be in line with consensus estimates

Trefis estimates COST’s FQ4 2024 revenues to be $80.4 Bil, in line with the consensus estimate. In its most recent Q3, the company’s revenues grew by 9% year-over-year (y-o-y) to around $59 billion, driven by a 6.5% increase in comparable sales (adjusted for gas prices and currency exchange), and 21% growth in eCommerce. The retailer ended the third quarter with 74.5 million paid household members, up 8% y-o-y. The renewal rate remained strong, at 93% in the U.S. and Canada, while the worldwide rate came in at 90.5%. This high renewal rate not only ensures a steady stream of revenue from membership fees but also increases the lifetime value of each customer, thereby boosting overall profitability. We need to monitor this metric when calculating Costco’s long-term growth potential. We forecast COST’s Revenues to be around $255 billion for the fiscal year 2024, up 5% y-o-y.

2) EPS likely to match consensus estimates 

(3) Stock price estimate almost in line with the current market price

Going by Costco’s valuation, with an EPS estimate of around $16.32 and a P/E multiple of 52.1x in fiscal 2024, this translates into a price of $850, which is aligned with the current market price.