Will Costco Stock Reach $1000?

Will Costco Stock Reach $1000? Yes, Costco will reach $1000 but the timeline for COSTCO to reach $1000 will depend upon EPS growth.

Costco Stock Price

Over the past five years, Costco stock has given 150% returns (as of 01.03.2023), clearly outperforming S&P 500 returns of only 46%. It is considered a safe bet in a downturn economy. In the last decade, the company has steadily opened new stores and gained more paying members. Although it still sits behind Amazon and Walmart as the largest US retailers but its consistent performance has made it an excellent stock to own.

The next big question is whether the share price can touch $1000, if yes, when?

Will Costco Stock Reach $1000? Bull Case

Costco stock is an evergreen stock. Its consistent performance even in the downturn economic conditions sets it apart from other retailers. Between fiscal 2017 and fiscal 2022, the store count grew from 741 to 838, its cardholders count also increased from 90.3 million to 118.9 million and it maintained a renewal rate of almost 90%. Such stable growth made it an evergreen stock for long-term investment.

Its business model is very simple. It generated 98% of revenue from product sales and only 2% from membership fees in fiscal 2022. However, membership fees of $4.2 billion accounted for most of its profits. The membership model helps the company to sell a lot of its products in bulk, which makes it a go-to option for price-conscious customers during inflation or economic downturn. Selling huge volumes at lower prices helps in maintaining economies of scale and keeps the customers loyal.

Now, Costco maintains high membership renewal rates and occasionally rise the membership fees to keep up with the inflation and open new stores. The bull case scenario is that the last membership fee hike occurred in 2017 and it is widely expected to raise the fees in the year 2023.

A membership fee hike will help the company to realize more profits and revenue in the upcoming quarters.

Will Costco Stock Reach $1000? Bear Case

No doubt that Costco was a great stock to own in the past. But that’s the mistake investors usually make, they look backward instead of looking for the future. Everyone loves the stock and that is pushing the valuations up for the stock. At present stock is trading at price to earnings ratio of 39, which is above its average for the last decade.

Will Costco Stock Reach $1000?

*Source: YCharts

The valuations are drifting higher since the Covid 19 market. If we take aside the last three years and take the average from 2013 to 2020, the long-term average only comes at 25, and at present stock is trading almost 56% higher than its long-term average.

The worst part is that it is expected that the growth of the company will slow down in the coming years. Over the past decade, Costco has grown at an average CAGR of 12% and now analysts are expecting it to slow down to 9.5% annually over the next three to five years.

So on one end, the valuations are rising higher because it is everyone’s darling stock and its growth prospects are slowing down because numbers are getting larger and harder to grow.

Will Costco Stock Reach $1000?

So, back to the original question, where will the stock be in the next five years? We assume a modest EPS CAGR growth of 10%

Will Costco Stock Reach $1000?
*Source: Tradingview

It is expected that EPS growth will reach 20.08 by 2026 from the present figure of 13.14. Even if we assume P/E at the farthest end of 39, the stock is likely to hit $783 by 2026.

By 2030, the EPS number will hit 26 and with a P/E ratio of 39, the stock price can hit $1000. Given that the company does not announce the stock split in the due course of time.

Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Index or Individual Stocks. Please consult a registered investment advisor to guide you on your financial decisions. 

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