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Finance

Costco Continues to Capture Market Share

  • The trend is always your best friend, and it is higher in COST shares
  • A pullback since its November 2020 high

  • Earnings and revenue growth are impressive

  • A dividend for shareholders- An excellent environment for workers

  • Buy the dip and enjoy the ride in this growth company

At least once a week, I venture over to our local Costco (COST) with my wife. Costco has been around since September 15, 1983, when the company opened its doors in Seattle, Washington.

Costco Wholesale Corporation and its subsidiaries operate member warehouses in the US, Puerto Rico, Canada, the UK, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. The company offers customers branded and private-label products in a wide range of merchandise categories.

As of October 2020, COST operated 796 warehouse locations with 552 in the US and Puerto Rico and over 100 in Canada. The company operates e-commerce websites. Costco introduced its private-label Kirkland brand in 1992, names from its then corporate headquarters location in Kirkland, Washington.

Costco (COST) shares were trading at the $335 level on February 25. The market cap stood at $148.299 billion. For decades, COST shares have been nothing short of a bullish beast.

The trend is always your best friend, and it is higher in COST shares

Since Costco’s (COST) IPO in 1985, the stock has soared.

Source: Barchart

As the chart highlights, COST shares opened in July 1986 at $10.69 and rose to a high of  $393.15 in November 2020. The stocks dropped to $271.28 in February 2020 as risk-off conditions gripped the overall stock market, recovered to a new all-time high in July, and peaked in November.

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A pullback since the November 2020 high

COST shares corrected from the late 2020 peak even as the rest of the stock market continued to make new and higher highs.

Source: Barchart

The short-term chart illustrates COST shares have made a series of lower highs and lower lows over the past three months since the November 30, 2020 record high. The latest low came on Thursday, February 25, at $334.10 per share.

Earnings and revenue growth are impressive

The company has been consistently profitable, exceeding consensus EPS forecasts in three of the past four quarters with a speed bump in fiscal Q2 2020.

Source: Yahoo Finance

The only miss came as COST reported EPS of $1.89 in Q2, missing estimates by six cents. Q2 2020 was the height of the global pandemic, which caused more than a few problems with the supply chain and social distancing guidelines that limited the number of shoppers at the company’s outlets. The current consensus forecast for Q1 2021 is for EPS of $2.44. COST will report earnings on March 4.

Source: Yahoo Finance

The chart shows that revenues grew steadily from 2017 through 2020 while earnings were stable.

A dividend for shareholders- An excellent environment for workers

At the $335 per share level on February 25, COST pays shareholders a $2.80 dividend, translating to a 0.82% yield on the stock.

Costco employees typically express a high level of satisfaction with their employer. A recent article on Forbes outlines Professor Zeynep Ton’s book The Good Jobs Strategy. She profiles Costco and Trader Joe’s “intentional cultures.” Both companies consistently outrange their competitors in consumer satisfaction surveys, with over 80% of employees recommending them as a “great place to work.” Average employees make around $21 per hour, well above the minimum wage. An excellent environment for employees builds loyalty. Employees that have been with COST for over one year have an annual turnover rate below six percent. For executives, it is under one percent.

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Buy the dip and enjoy the ride in this growth company

COST is a growth company. The company weathered the global pandemic and supply chain issues and emerged as one of the leading retailers.

Source: https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2020-list

The chart shows that COST ranked fourth on the NFR’s list of top retailers according to sales in 2019.

Technical support for COST shares is nearby at the September 18 $331.20 low. Below there, support levels are at $320.45, $293.84, and $271.28. Resistance is at $381.55 and the all-time peak at $393.15.

Costco shares have been trending high for three and one-half decades. The trend is always your friend in markets, and the long-term path of COST shares remains higher as we head into the third month of 2021.  The current correction is likely to be another opportunity to accumulate shares before the next new high.

View more information: https://stocknews.com/news/cost-costco-continues-to-capture-market-share/

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