Is Costco Stock a Buy After Hiking Membership Fees?

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$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].