5 Reasons to Buy Costco Stock Like There's No Tomorrow

Core Viewpoint - Costco's recent earnings report showed strong revenue growth despite a slight earnings miss, indicating resilience in a challenging macroeconomic environment and presenting a potential buying opportunity for investors [1][2]. Group 1: Financial Performance - In Q2 of fiscal 2025, Costco's revenue increased by 9% year over year to $63.72 billion, surpassing analysts' expectations by$640 million [1]. - Net income rose by 3% to $1.79 billion, or$4.02 per share, although it fell short of the consensus forecast by $0.09, primarily due to higher merchandise costs [2]. Group 2: Comparable Store Sales - Adjusted comparable store sales (comps) grew by 10.6% in fiscal 2022, 5.2% in fiscal 2023, and 5.9% in fiscal 2024, with an additional rise of 8.1% in the first half of fiscal 2025 [3]. - The growth in comps suggests that Costco is well insulated from inflation, which typically drives consumers to bulk purchases [4]. Group 3: Membership Growth - The total number of Costco cardholders increased by 6.6% year over year to 140.6 million, indicating strong retention of pricing power [6][7]. - The gross margin expanded by five basis points to 10.85%, while the operating margin rose by 10 basis points to 3.63% during the quarter [7]. Group 4: Membership Renewal Rates - Worldwide renewal rates remained steady at 90.5%, with the U.S. and Canada renewal rate increasing by 10 basis points to 93% [8][9]. - High renewal rates suggest that memberships are sticky, providing a competitive edge against rivals like Walmart's Sam's Club and BJ's Wholesale Club [9]. Group 5: Expansion Strategy - Costco has consistently opened new warehouses, increasing the number from 838 in fiscal 2022 to 890 in fiscal 2024, and reaching 897 by the end of Q2 2025 [10][11]. - This ongoing expansion reflects Costco's confidence in its business model despite macroeconomic challenges [11]. Group 6: Valuation Justification - Analysts project Costco's revenue and earnings per share to grow at compound annual growth rates of 7% and 10%, respectively, from 2024 to 2027 [12]. - The company's robust business model supports its premium valuation, trading at 48 times next year's earnings [12][13].