Costco (COST -1.18%) customers rely on the warehouse club operator to deliver great deals on bulk items. Long-term investors have also come to realize bulk-sized gains on the stock. Consistent growth -- even in an industry with razor-thin margins -- can be pretty rewarding over time.
You probably weren't lucky enough to get in on the Costco IPO. The chain went public at $10 on Dec. 5, 1985. The stock hit an all-time high of $328.98 on Thursday, but that doesn't mean the investment's been nearly a 30-bagger over the past 35 years. The story is actually better than that. A stake as modest as $1,000 at the time of its Wall Street debut is worth a lot more than you probably think.
Image source: Costco Wholesale.
Bulk savings
Investing $1,000 in Costco at the time of its 1985 IPO would be good for exactly 100 shares, but it would not be worth $32,633 today just because the stock closed at $326.33 on Friday. The news is actually much better than that for its long-term stakeholders.
The warehouse club operator has declared three stock splits over the years, so those 100 shares purchased at the $10 IPO price would now be 600 shares. At the current price we're talking about $195,798 -- a cool 195-bagger for its initial retail investors.
It's hard to argue with Costco's success. It has posted positive revenue growth in all but one year through its first 35 years of trading. The one down year -- the subprime recession-saddled fiscal 2009 -- was also limited to a mere 1.5% decline.
Costco has grown its empire of bare-boned superstores stocking great deals for its shoppers to 788 warehouses. It's not just a U.S. phenomenon, as 240 locations are open outside its home country. It's a winner, and despite its all-weather appeal, it's not afraid to deliver market-thumping returns. The stock rose 44% last year.
Costco wins all around. Shoppers love the honest markups. Costco's gross margin has clocked in between 12.4% and 13.3% over the past decade. Its net margin has never been higher than the 2.4% it posted in fiscal 2019. It generates roughly 2% of its revenue from the membership fees it charges. So it's fair to say that those subscriptions account for the lion's share of its profit.
Employees are also winning. Costco is routinely identified as one of the country's best places to work, offering higher-than-average salaries, wages, and benefits to its workforce. A hearty 82% of employees recommend working at Costco according to Glassdoor, a high figure in the typically turnover-happy retail realm.
Shareholders are winning big, too. You won't find too many investors complaining about a 195-bagger. Costco also sweetens the returns with quarterly dividends, payouts that the warehouse club operator has increased every year since initiating a distributions policy in 2004. It's well on the way to becoming a Dividend Aristocrat, making sure it rewards its investors in more ways than one.
