The investment thesis of BJ's Wholesale (NYSE:BJ) changed significantly after the pandemic. With its suddenly heightened revenue and earnings, it paid down significant debt, freeing capital for activities that could boost its bottom line over time.

Such a retail stock could also attract the attention of Warren Buffett and his team at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). In fact, history points to Warren Buffett's success in investing in similar companies.

Warren Buffett.

Image source: The Motley Fool.

BJ's resembles a one-time Buffett investment

Warren Buffett has built a history of buying investments cheaply and selling high, if he sells at all. He once said in a CNBC interview that new investors should favor smaller companies due to the "chance that something is overlooked in that arena." At a market cap of $8 billion, BJ's fits that description.

Buffett could also develop an interest in BJ's due to its resemblance to his former stake in Costco (NASDAQ: COST).

Buffett made his first significant purchase of Costco stock in 2000. At that time, it was an expanding retailer that operated around 300 warehouses. Its U.S. footprint did not span the nation, though it had expanded into Mexico and Canada and as far as the U.K., Taiwan, and South Korea. However, over time, it grew to 820 locations across 46 U.S. states and 12 countries.

Buffett held shares in the company for over 20 years before selling the entire position in the third quarter of 2020.

The state of BJ's

Admittedly, many analysts still consider Costco stock a buy despite Buffett's sale of his position, and no analyst can guarantee that BJ's will follow Costco's growth path. Nonetheless, it exhibits some similarities to the Costco of 2000. While BJ's remains a regional retailer, it operates 222 clubs in 16 states, primarily on the East Coast.

Before 2020, BJ's was a heavily indebted company that could not afford to make the necessary investments in itself to foster significant expansion. In fiscal 2019, revenue grew by only 1%. The 47% gain in net income at that time came only because the company cut interest expenses. Moreover, $1.7 billion in total debt weighed on a balance sheet with $54 million in negative stockholders' equity.

Today, the outlook has improved dramatically. In fiscal 2020, revenue surged 17%, and net income climbed 124%. The higher income came primarily from slowing operating expense growth and falling interest costs, with increased taxes offsetting some of the improvement.

Indeed, like many high performers during the pandemic, growth slowed as some people returned to pre-pandemic shopping patterns. In the first six months of 2021, revenue climbed by 4%, and net income fell 5% in an environment of rising operating costs.

Nonetheless, analysts forecast 6% revenue growth in the next fiscal year, indicating a lasting improvement compared to pre-pandemic conditions. Total debt now stands at just $747 million, and stockholders' equity has turned positive, reaching $488 million.

This should help BJ's fund the expansion. While the company has made no explicit plans to go national or international like Costco before it, the footprint has steadily moved westward, reaching as far west as Michigan in recent quarters.

BJ's stock could also play to Buffett's inclination to look for bargains. While the price-to-earnings (P/E) ratio has risen since the shutdowns, it sells for a P/E ratio of 21, well below Costco's 44 multiple or Walmart at 42 times earnings.

BJ's stock has also increased by more than 65% in 2021. This compares well to Costco's 32% increase and the 4% rise in Walmart stock. 

Chart showing price rises for BJ's, Costco, and Walmart in 2021.

BJ data by YCharts

Warren Buffett and BJ's Wholesale

Buffett and his team have shown no indication that they have considered BJ's stock. However, it has offered faster growth at a lower price compared to Walmart and one-time Buffett stock Costco in the retailing space. As BJ's invests more in expansion and seeks new markets, it could draw Buffett's eye as it follows in Costco's footsteps.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.