Costco Wholesale's (COST 1.01%) business has exploded in recent years, helping it become one of the world's most successful retailers. In the last five years alone, shares of the warehouse retailer have soared 166%. The company's unique business model of offering an annual membership in exchange for access to wholesale items at industry-low prices has won over shoppers worldwide.
Yet, Costco is only at the start of its global expansion. The company is on a path to continue seeing significant financial gains year over year as it grows its international footprint. Here's why Costco is a screaming long-term buy right now.
Its stock is outperforming the competition
The retail industry is highly competitive, with Costco up against major corporations such as Amazon, Walmart, and Target. However, Costco has differentiated itself from the competition with its wholesale model and allowed space for its customers to shop at competing stores while also visiting its locations on a regular basis. As a result, Costco has significantly outperformed its peers in recent years.
The chart below shows that since 2018, shares in Costco have delivered close to double the growth of its biggest U.S. competitors. The company's performance over the last five years also illustrates its reliability. While Amazon and Target have experienced dramatic peaks and valleys in their stock prices, Costco shares have more consistently trended upward.
Data by YCharts
In addition to impressive stock gains, Costco's financials are growing at a faster pace than any of the companies above. The chart below shows that Costco's quarterly revenue has risen 125% in the last five years, more than Amazon, Walmart, or Target in the same period.
Data by YCharts
The supermarket and grocery industry hit a value of $11 trillion in 2021 and is projected to expand at a compound annual growth rate (CAGR) of 3% through 2030. While its growth might not be as significant as some tech industries, it's a good sector to invest in and hold over several decades. Meanwhile, Costco's history of reliable gains and ability to regularly outperform its competitors makes it an attractive option.
Massive growth potential lies abroad
Costco has an impressive past. However, its future is even more exciting. The company operates 870 stores across 14 countries and is rapidly expanding. Its popular business model has traversed cultures and continents, with customers embracing the company far and wide.
For instance, Costco opened its first store in France in 2017, a country famously difficult for foreign companies to enter (Walt Disney faced protests when opening Disneyland Paris in 1992). Yet Costco's first store was a massive success in the European country, with the company announcing plans to open 15 additional units in France by 2025.
Additionally, in 2023 the company ventured into China for the first time and has already expanded to five stores in the country. Despite operating in 14 countries, Costco continues to have significant growth potential abroad. In six of those countries, the company has five or fewer locations, indicating almost endless expansion possibilities within those regions and new ones.
In the fourth quarter of Costco's fiscal 2023, revenue rose 9.5% year over year, beating Wall Street expectations by more than $1 billion. The company's international segment reported revenue growth of 4%, surpassing the 3% revenue growth of the U.S. The company opens an average of 25 new locations annually and will likely see its international stores eventually surpass its domestic business. Costco's focus on expanding abroad is promising for its long-term future and will likely provide consistent growth for years.
Like most retail businesses, Costco is vulnerable to economic fluctuations. However, its history of reliability and solid revenue growth is a compelling reason to make a long-term investment in its stock.
