Costco's latest membership fee hike doesn't even come close to making up for inflation. Should they have done more?Costco (COST 0.34%) recently announced a $5 annual price increase to its base membership level. This is the first time the warehouse giant has increased its membership cost since 2017. Given the recent effects of inflation, there's a solid argument to be made that Costco should have done more, and here's what longtime Fool.com contributor and Costco shareholder Risk Munarriz has to say about it ...

Costco is looking toward technology to improve the customer experience at its brick-and-mortar and online stores without significantly changing the retail giant’s proven business strategy, the company’s chief financial officer said.Costco CFO Gary Millerchip was taking questions from analysts during Costco’s third quarter earnings call earlier this year when he was asked what the company thought about being “more aggressive” with the evolution of its retail business model by deploying more technology in its ...

Stock Splits Overview - Stock splits remain a major theme in the market this year, with companies like Deckers Outdoor and Broadcom recently announcing splits [1] - Stock splits make shares more affordable for investors, particularly retail investors, without changing the valuation or fundamentals of the stock [1] - Recent examples include Walmart, Nvidia, and Chipotle Mexican Grill, which have split their stocks to attract more investors [1] Costco Wholesale (COST) - Costco's stock has risen 44% over the last 12 months, reaching $815 per share, with a high valuation of 46 times future earnings estimates [2] - The company has not split its stock in 24 years, and the current high share price may prompt management to consider a split [2] - Costco's stock has risen nearly 200% in the last five years, making it a long-term winner for investors [3] Super Micro Computer (SMCI) - Super Micro Computer's stock is trading at nearly $700, more than double its price at the start of the year, with a P/E ratio of 39 [4] - The stock has fallen 43% from its 52-week high of $1,229, but a stock split could make it more attractive to retail investors [5] - Year-to-date, Super Micro Computer's stock has risen 148%, driven by demand for its AI servers [5] ServiceNow (NOW) - ServiceNow's stock surged nearly 15% after strong Q2 financial results, driven by AI demand, and is now trading near a 52-week high of $850 [6] - The stock's valuation is sky-high at about 90 times future earnings estimates, and it has risen nearly 3,000% since its 2012 IPO [6] - With the share price approaching $1,000, a stock split may be considered, especially as the company continues to benefit from the AI trade [6]

Core Viewpoint - Costco has demonstrated significant historical growth and has potential for future opportunities, but current stock prices may not justify an investment at this time [1][4]. Group 1: Company Performance - Costco has achieved a remarkable 1,700% increase in share price since the year 2000, leading to a total return of 2,600% when including dividends [1]. - Membership fee revenue reached $1.1 billion in the fiscal third quarter of 2024, contributing approximately 50% to the company's operating income [2]. - Sales have increased by 650% since 2000, while earnings have risen nearly 950%, indicating a strong business model [3]. Group 2: Valuation Concerns - Costco's stock is currently near all-time highs, with a price-to-earnings (P/E) ratio of nearly 52, which is significantly above its five-year average of about 40 [5]. - The elevated P/E ratio is reminiscent of the late 1990s, suggesting that investors may be pricing in excessive optimism regarding future earnings growth [6]. - It is advised to place Costco on a wish list rather than an immediate buy list, with a recommendation to consider purchasing if the P/E ratio drops to its five-year average or lower [7].

Stock Splits and Market Impact - Stock splits generate excitement among investors, leading to increased market cap despite not inherently increasing company value [1] - Companies like Amazon, Chipotle, Nvidia, and Broadcom have seen increased investor interest following stock splits [1] Costco (COST) Performance - Costco is a potential candidate for a stock split, trading above $800/share, with shares up 29% year-to-date and nearly tripling over the past five years [2] - The company reported a 6.9% year-over-year increase in net sales for the first 44 weeks and a 5.3% increase in comparable sales for June [3] Meta Platforms (META) Growth - Meta Platforms has seen a 38% increase in shares year-to-date and a 140% increase over the past five years, with revenue up 27% year-over-year and net income up 117% year-over-year [4][5] - The company has focused on shareholder returns through stock buybacks and dividends, indicating a potential for a stock split [5] Microsoft (MSFT) Financials - Microsoft has a history of stock splits, with the last occurring over 20 years ago, and currently trades above $400/share, up 18% year-to-date and 220% over the past five years [6] - The company reported a 17% year-over-year revenue growth in Q3 of fiscal 2024, with cloud revenue growing by 23% to reach $35.1 billion [6][7] - Microsoft returned $8.4 billion to shareholders through stock buybacks and dividends in the latest quarter [7]

Core Viewpoint - Costco Wholesale Corporation has shown remarkable stock performance and operational success over the past thirty years, with a stock price increase of over 2,500% since 2003, making it a strong candidate for investment consideration [1]. Leadership and Membership Fees - A new CEO, Ron Vachris, will take over from Craig Jelinek effective January 1, 2024, ensuring continuity as Vachris has been with the company for over 40 years and worked closely with Jelinek for nearly two years [2]. - Membership fees will increase for the first time since 2017, with annual prices rising by $5 and $10 for the two membership levels, which could potentially disrupt operations if membership declines, although a significant loss of members is deemed unlikely due to high customer loyalty [3]. Operating Performance - For the third quarter of the 2024 fiscal year, Costco reported a 9.1% increase in net sales to $4.79 billion and a 29% increase in net income to $1.68 billion, with comparable location sales up 6.5% on an adjusted basis, indicating strong customer reliance under new leadership [4]. Growth Opportunities - Future growth may be limited in the U.S. due to competition from Walmart, Sam's Club, Target, and Amazon, making substantial increases in new memberships unlikely in the coming years [5]. - The recent membership fee increases are expected to enhance cash flows, as Costco has a 90% member renewal rate, suggesting minimal impact on membership numbers [5]. - International expansion is a key focus, with 10 out of 23 new locations opened in the 2023 fiscal year being outside the U.S., indicating a cautious approach to growth that could benefit investors [6][7]. Valuation and Investment Appeal - Costco appears fully valued based on its current business operations, with a Price-to-Earnings ratio of 36.1 and a Price-to-Free Cash Flow ratio of 67.0, alongside a dividend yield of 0.71% that is well covered, making it attractive for income investors [8]. - Growth investors may consider adding shares, as the dividend provides a reward while waiting for international membership growth [8].

Group 1: Market Outlook - There is significant optimism for Q4 2024 among retail investors, driven by the prospect of US Federal Reserve interest rate cuts, potentially lowering rates to 4.75% by the end of 2024 [1] - Historically, the S&P 500 has shown strong performance in Q4, growing 77% of the time since 1945 and averaging a gain of 3.8% during this quarter, supported by increased consumer spending [1] Group 2: Macy's Inc (M) - Macy's has faced challenges in its post-pandemic recovery, currently over 75% below its 2015 highs, and announced the closure of 150 stores due to shifts in consumer behavior [3][4] - A potential $6.9 billion buyout by Arkhouse Management and Brigade Capital Management fell through, leading to a 15% drop in Macy's stock, indicating high volatility and uncertainty for the retailer [3] Group 3: Lowe's Companies Inc (LOW) - Lowe's has historically provided consistent value for investors, but recent insider selling of $1.5 million worth of stock raises concerns about future performance [5] - Despite beating Q1 2024 earnings estimates, Lowe's net income fell over 20% year-over-year to $1.76 billion, suggesting a potential market correction due to a slowdown in DIY spending [6] Group 4: Costco Wholesale Corporation (COST) - Costco has experienced over 50% growth in the first half of 2024 but faced a dip following a membership fee increase, the first since 2017, raising individual fees from $60 to $65 and executive fees from $120 to $130 [7] - The stock may enter a volatile phase as investors reassess their long-term holding strategies following the fee hike [8]

Core Viewpoint - The stock market is currently facing challenges due to macro pressures, upcoming elections, and geopolitical tensions, but long-term investment opportunities exist for those who can focus on stocks with attractive return prospects [1] Group 1: Costco Wholesale - Costco Wholesale has announced an increase in its membership fees, raising the "Gold Star" membership by $5 to $65 and the "Executive Membership" from $120 to $130, effective September 1 [2] - Jefferies analyst Corey Tarlowe reiterated a buy rating on COST stock and raised the price target to $1,050 from $860, viewing the membership fee hike as a favorable catalyst for the stock and earnings [2][3] - Historically, Costco has increased membership fees every 5.5 years, and Tarlowe expects the fee hike to enhance sales and earnings, estimating a nearly 3% benefit to earnings per share over the next two years [3] Group 2: MongoDB - MongoDB's stock experienced a decline after the company provided weak guidance for the fiscal second quarter and lowered its full-year outlook, attributing this to a slower-than-expected start to the year [4] - Tigress Financial analyst Ivan Feinseth lowered the price target on MDB stock to $400 from $500 but maintained a buy rating, viewing the sell-off as a buying opportunity [4] - Feinseth is optimistic about MongoDB's growth, particularly with the integration of AI capabilities and expansion into major verticals such as healthcare and automotive production [5] Group 3: Nvidia - Nvidia is benefiting from increased demand for its advanced graphics processing units due to the generative AI wave, with Goldman Sachs analyst Toshiya Hari reiterating a buy rating and a price target of $135 [7] - Following a meeting with Nvidia's CFO, Hari expressed confidence in the sustainability of the ongoing generative AI spending cycle and Nvidia's ability to maintain its market dominance through innovation [7][8] - The analyst expects significant revenue contributions from Nvidia's next-generation AI graphics processor, Blackwell, in Q4 FY25 and Q1 FY26, while noting limited contributions in Q3 FY25 [8]

Core Viewpoint - Costco has announced an increase in membership fees, which is expected to boost revenue but may also risk losing some members [1][4]. Group 1: Membership Fee Increase - Costco will raise its standard and premium membership fees by $5 to $65 for Gold Star and business memberships, and by $10 to $130 for Executive memberships, affecting 52 million memberships [4]. - The increase in membership fees is significant as it contributes to a steady stream of high-margin revenue for the company [2][3]. Group 2: Historical Performance - Historically, Costco's stock has performed well following past membership fee increases, with gains of 32% after the last hike in 2017, 43% after the 2011 hike, and 33% after the 2006 increase [5]. - Membership fees are a key part of Costco's profit structure, contributing over $1.1 billion to revenue in the most recent quarter, despite net sales of $57 billion [3]. Group 3: Business Model Resilience - Costco's business model, characterized by low prices on essential goods and a membership fee structure, has allowed it to thrive in various economic conditions [2]. - The company maintains high renewal rates of over 90% in the U.S. and Canada, indicating strong customer loyalty despite fee increases [3]. Group 4: Future Outlook - While there is a possibility of losing some members due to the fee increase, it is expected that most members will continue to see value in the deals offered at Costco [6]. - The historical trend suggests that Costco's shares are likely to perform well in the coming years, making it a strong long-term investment opportunity [7].

Core Viewpoint - The Dow Jones Industrial Average reached a record high of 40,720.64 on July 15, 2024, but the 30 blue-chip stocks in the index have only increased by 8% this year, significantly underperforming the S&P 500. This shift indicates a changing landscape in blue-chip investments, with technology and consumer discretionary stocks emerging as more favorable options for long-term growth [1]. Group 1: Company Comparisons - Costco (COST) is highlighted as a superior blue-chip investment compared to Coca-Cola (KO), with Costco's stock returning 427% over the past 7.5 years, compared to Coca-Cola's 54% [2]. - Costco announced an increase in its annual membership fee to $65 for individual Gold Star and business members, and to $130 for premium memberships, marking the first fee increase since 2017 [3]. - TJX Companies (TJX) is recommended as a better alternative to McDonald's (MCD), with Q1 2024 earnings per share of 93 cents, a 22.4% increase year-over-year, and revenue of $12.48 billion, up 5.9% [4][5]. - Pinterest (PINS) is suggested as a better blue-chip stock than Walt Disney (DIS), with a 150% increase in earnings in Q1 2024 and projected revenue growth of 19.5% per quarter [6][7]. Group 2: Market Performance and Trends - The Dow 30 stocks are no longer seen as the best long-term investments, with technology stocks like Nvidia (NVDA) gaining more attention for their growth potential [1]. - Costco's strategy of maintaining low prices while generating profits from membership fees contrasts with beverage companies that have significantly raised prices [3]. - TJX's conservative guidance and favorable buying environment suggest potential for continued stock performance despite slight misses in analyst expectations [5]. - Pinterest's focus on AI and shopability is driving revenue growth, positioning it well for future performance compared to Disney [7].