Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (2024)

The warehouse retailer's stock doesn't offer much value, so it could be worth considering Amazon instead.

Costco Wholesale's (COST -0.15%) stock price is up roughly 203% over the last five years, a result that puts this retailer on par with some of the most prominent names in tech. That's especially impressive considering that direct retail rivals like Walmart (WMT -0.10%) and Target saw share price gains of just 82% and 79% over that same period. While this established company operates relatively conservatively and gives off the impression of being a value stock, it's more accurate to label Costco as a growth stock.

It's probably also fair to say Costco is a relatively expensive growth stock at the moment. While its five-year stock price run-up has been excellent for long-term shareholders, it has also raised Costco's valuation to the point where would-be new buyers might want to be wary.

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (1)

Data by YCharts.

Costco's price-to-earnings (P/E) and price-to-sales (P/S) ratios are significantly higher than their 10-year averages, suggesting the stock isn't cheap on an investment basis (although I could just as well argue the stock price and company performance still warrant the expensive valuation). If you are on the side who thinks it's not a good buy right now, it might be worth considering alternative investment options.

Investing in growth is kinda cheap right now at Amazon

Amazon (AMZN -0.34%) might just be that alternative. Amazon's business is back in growth mode and investor interest has exploded over the last year, with its share price up 39%. Amazon delivered multiple quarters of impressive earnings, boosted by easing inflation, successful cost-cutting measures, a thriving cloud business, a growing digital ad business, and an expanding role in artificial intelligence (AI).

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (2)

Data by YCharts

A look at Amazon's basic metrics shows its P/E is well below its 10-year average, while its P/S is just a bit higher than average. Admittedly, Amazon has had some outlier quarters (especially regarding P/E) that skew the long-term average somewhat, so it's understandable that some might consider this an unfair comparison. But even at shorter intervals, these metrics suggest Amazon's stock might be considered a bargain compared to Costco.

One metric that might offer a more fair comparison is the PEG ratio.The PEG ratio tells you how expensive a stock is relative to its growth rate. The PEG takes the P/E and divides that by the expected EPS growth rate over a set number of years (often five years). A PEG ratio of 1 indicates a stock trades at a fair price. Anything figure under 1 suggests a bargain, the higher the figure is above 1, the less of a bargain a stock is. Looking at the chart below, Amazon is the clear bargain here.

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (3)

AMZN PEG Ratio data by YCharts

Better exposure to high-growth markets

Costco is exceptionally good at the retail aspects of its business. It has differentiated itself in the market with wholesale pricing and its membership model. But that part of its business tends to be low-margin and it can be affected by macroeconomic headwinds. Meanwhile, Costco's fastest-growing segment of late is e-commerce. In its fiscal 2024 third quarter (which ended in May), its online retail division posted revenue gains of 21% year over year, while its other segments delivered growth of between 6% and 8%. So e-commerce has the potential to be a growth market for Costco.

But if e-commerce is where the growth is, what better way to invest in that space than Amazon? The company holds a dominant 38% share of the U.S. e-commerce sector. Walmart is No. 2 for share with just 6% of the market.

Amazon is working to maintain (and potentially even grow) its share of e-commerce by investing in artificial intelligence (AI) to create a smart shopping assistant for its site, to better track shopping trends, to better target advertising for itself and its third-party sellers, to improve recommended products for shoppers, and to optimize shipping logistics. It is well-equipped to do this because the various investments Amazon has made over the years to help its e-commerce business have turned into huge businesses all their own.

Diversifying its business to maintain growth

Thanks to its now highly diverse business, Amazon is tapping into some of the most lucrative areas of tech. In addition to e-commerce, Amazon has a highly profitable cloud division with Amazon Web Services (AWS). Among its various services, AWS operates data centers worldwide, delivering cloud solutions to a long list of clientele. Given the projected growth in AI, which relies on data centers to do what it does, AWS will continue to see outsized demand for its services.

AWS already contributes the most of any of its segments to Amazon's bottom line. Amazon has been using those funds to invest heavily in the budding AI market and to expand its growing digital advertising segment. These complimentary business segments keep the growth engine running.

In the first quarter, AWS' revenue increased 17% year over year. That strong growth was topped by the Advertising services segment, which saw 24% year-over-year growth. Despite accounting for just 17.5% of net sales last quarter, AWS was responsible for over 61% of the company's Q1 operating income.

Recent reports point to Costco potentially expanding into digital advertising, using its shopper data to offer targeted ads on its e-commerce site and elsewhere. Amazon is already thriving in the digital ad market. As mentioned, advertising services revenue jumped 24% in Q1. Part of that jump can be attributed to the introduction of ads on its streaming platform Prime Video. Streaming advertising is a relatively new market, but with 22% of the video-on-demand market, Prime Video is well positioned to continue boosting earnings and attracting new advertisers.

Amazon is far outpacing Costco in financial growth

As the table below illustrates, Amazon's financial metrics performed well over the last five years, delivering triple-digit growth in quarterly revenue and operating income. Costco's comparable metrics trended up at a respectable rate over that time, and it even beat Amazon on free cash flow growth.

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (4)

Data by YCharts.

The difference between the two, including Amazon's faster growth rate, is tied to the tech giant's more diverse business model. Cloud computing and digital advertising (and eventually its AI efforts) are fueling Amazon's next stage of growth and will likely continue to do so well into the future as these industries develop.

Because Amazon's business keeps growing at double-digit rates, it's not too late for long-term investors to get in on the action and profit from its sizeable opportunities. Given its better valuation, Amazon is a growth stock worth considering instead of Costco right now.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook 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.

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool (2024)

FAQs

Forget Costco: Buy This Unstoppable Growth Stock Instead | The Motley Fool? ›

Amazon. The warehouse retailer's stock doesn't offer much value, so it could be worth considering Amazon instead. Costco Wholesale's (COST -0.15%) stock price is up roughly 203% over the last five years, a result that puts this retailer on par with some of the most prominent names in tech.

What will Costco stock be worth in 10 years? ›

Costco stock price stood at $848.73

According to the latest long-term forecast, Costco price will hit $1000 by the end of 2024 and then $1100 by the middle of 2025. Costco will rise to $1400 within the year of 2026, $1500 in 2027, $1800 in 2028, $2000 in 2029 and $2500 in 2034.

What is the stock price expectation for Costco? ›

Based on short-term price targets offered by 29 analysts, the average price target for Costco comes to $874.90. The forecasts range from a low of $620.00 to a high of $1,050.00. The average price target represents an increase of 4.23% from the last closing price of $839.37.

What is the name of the Costco investment company? ›

Costco is a Washington corporation, publicly traded under the Nasdaq ticker symbol "COST", with its home office in Issaquah, Washington.

How to invest in stocks for Costco? ›

How to buy Costco stock on Public
  1. Sign up for a brokerage account on Public. It's easy to get started.
  2. Add funds to your Public account. ...
  3. Choose how much you'd like to invest in Costco stock. ...
  4. Manage your investments in one place.

Is Costco stock a buy in 2024? ›

Costco is unstoppable

In the 2024 fiscal third quarter (ended May 12), sales increased 9.1% year over year, with a 6.6% comparable sales increase and 20.7% increase in e-commerce. Costco has been expanding its e-commerce business, and it now serves as a strong overall growth driver.

What is the highest Costco stock has ever been? ›

Costco - 38 Year Stock Price History | COST
  • The all-time high Costco stock closing price was 886.85 on July 09, 2024.
  • The Costco 52-week high stock price is 896.67, which is 7% above the current share price.
  • The Costco 52-week low stock price is 530.56, which is 36.7% below the current share price.

Who owns the most Costco stock? ›

According to the latest TipRanks data, approximately 58.42% of Costco (COST) stock is held by retail investors. Who owns the most shares of Costco (COST)? Vanguard owns the most shares of Costco (COST).

Which are the best stocks to invest in 2024? ›

Best stocks in 2024
S.No.NameCMP Rs.
1.Man Infra193.54
2.BLS Internat.340.30
3.RHI Magnesita585.70
4.Gujarat Gas619.20
23 more rows

What is the future forecast for Costco stock in 2030? ›

According to our Costco stock prediction for 2030, COST stock will be priced at $ 2,354.50 in 2030. This forecast is based on the stock's average growth over the past 10 years.

Who actually owns Costco? ›

Costco is mainly owned by institutional investors, who own over 70% of shares. The largest shareholders in December 2023 are: The Vanguard Group (9.10%)

What is better, Sam's Club or Costco? ›

Costco has more stores across the globe, is expanding rapidly, and generally offers cheaper prices than Sam's Club does, although the latter charges slightly less for membership, has a bigger presence in the U.S., and stocks more name brands.

Is Costco owned by Target? ›

Costco is not part of the Target Corporation (or vice versa) whereas Sam's Club is a division of Walmart Stores.

What to do if Costco is out of stock? ›

If the item is out of stock, it will be listed as unavailable. This means you'll have to wait until it's restocked to make your purchase. Keep in mind that if you have a specific product in mind but don't see it listed, you can always call a local Costco warehouse to ask if they have any available.

Does Costco have any preferred stock? ›

Preferred stock is a special equity security that has properties of both equity and debt. Costco Wholesale's preferred stock for the quarter that ended in May. 2024 was $0 Mil. The market value of preferred stock needs to be added to the market value of common stocks in the calculation of Enterprise Value.

How often does Costco pay dividends? ›

Costco Wholesale Corporation's ( COST ) ex-dividend date is July 26, 2024 , which means that buyers purchasing shares on or after that date will not be eligible to receive the next dividend payment. Costco Wholesale Corporation ( COST ) pays dividends on a quarterly basis.

What is the price prediction for Costco in 2030? ›

According to our Costco stock prediction for 2030, COST stock will be priced at $ 2,331.83 in 2030. This forecast is based on the stock's average growth over the past 10 years.

Is Costco stock a good long term investment? ›

Based on analyst ratings, Costco's 12-month average price target is $910.05. Costco has 8.30% upside potential, based on the analysts' average price target. Costco has a consensus rating of Strong Buy which is based on 19 buy ratings, 6 hold ratings and 0 sell ratings.

What is Kirkland stock prediction for 2025? ›

Kirklands stock prediction for 1 year from now: $ 10.84 (519.59%) Kirklands stock forecast for 2025: $ 3.29 (93.44%) Kirklands stock prediction for 2030: $ 89.08 (5,139.78%)

What is the future value of Costco stock? ›

Costco Wholesale Corp quote is equal to 838.130 USD at 2024-07-20. Based on our forecasts, a long-term increase is expected, the "COST" stock price prognosis for 2029-07-11 is 1317.520 USD. With a 5-year investment, the revenue is expected to be around +57.2%. Your current $100 investment may be up to $157.2 in 2029.

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