As the novel coronavirus wreaked havoc on American businesses, warehouse-club operator Costco Wholesale (NASDAQ:COST) became an unexpected beneficiary of the crisis. Costco stock wobbled, but mostly held steady as shoppers stormed the stores for essential consumer staples.
Even after the shopper stampede subsided, Costco stock maintained its long-term upward trajectory. There is just something about Costco that consumers and safety-minded investors can’t seem to resist.
But is it necessary to pigeonhole Costco stock as a haven for ultra-defensive investors? Not at all. While it is not necessarily a fast mover, an argument can be made that it is actually a growth stock with serious upside momentum.
Costco Stock at a Glance
Usually people consider tech stocks or electric vehicle stocks as the big movers nowadays. Yet, on a multi-year time horizon, not too many mega-cap stocks have outperformed Costco stock.
If you can believe it, over the past 10 years, the total return of Costco stock has been more twice the total return of the S&P 500. In fact, Costco investors have earned 65% total annual returns during this period.
Costco stock’s forward annual dividend yield is 0.83%, which is not outstanding. Nevertheless, it is a nice added incentive for prospective investors who want to collect some yield along with the share-price appreciation.
The real strength and sturdiness of Costco stock was on full display during the coronavirus crisis. From February through April, the stock fluctuated somewhat but didn’t break below the key $270 level. And today, it remains above $300.
Up to the Challenge
Even during this year of turmoil, Costco proved to the world that the company can withstand just about anything. Take a look at these stats from the trailing 12 months:
- $161 billion in sales
- Net income of $3.7 billion
- Operating cash flow of roughly $7 billion
No wonder Costco stock has held steady. You just can’t argue with strong, consistent sales and income. Skeptics might wonder how Costco can post such strong numbers despite the company being known as a discount retailer.
It is true that Costco isn’t famous for selling fancy, big-ticket items with sky-high markups. However, that is not the key to Costco’s runaway success. Rather, it is the company’s emphasis on memberships.
Having loyal repeat customers definitely pays off. Last year, 54 million paid Costco members enhanced the company’s top line by a whopping $3.4 billion. It is a savvy business model as the company not only collects membership fees, but also gives the shoppers a sense of belonging that keeps them coming back.
What About E-Commerce?
Even with the aforementioned stats in mind, there is still a nagging question that prospective Costco stock investors must face. Specifically, how has Costco fared in a time when e-commerce appears to be taking over the retail space?
You might not think of Costco as an e-commerce juggernaut. And there are undoubtedly companies other than Costco that deserve that title. Yet, this company’s rapid expansion into this area might surprise you.
We’ll get a more complete picture of Costco’s e-commerce revenues and overall fiscal performance when the company reveals its latest quarterly financial data on Sept. 24.
In the meantime, however, shareholders should appreciate Costco’s monthly e-commerce sales growth, which was 85.8% in June, 75.3% in July and 101.9% in August.
Suffice it to say, then, that Costco is proving its mettle against the company’s peers in the e-commerce domain.
The Takeaway
All in all, there is no need to classify Costco stock as just a defensive or safety stock. Certainly it is an all-weather investment — and this was demonstrated during the coronavirus crisis.
Nonetheless, Costco stock can fit into any long-term portfolio, whether the focus is on steady consistency or on revenue growth and expansion into e-commerce.
On the date of publication, Louis Navellier had a long position in COST. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
