Costco (COST +2.00%) has delighted shoppers for years with its dirt cheap prices on everything needed to keep a household running -- from food and other essentials to electronics. How does Costco manage to offer such deals? The company buys items in bulk, so it benefits from low prices -- and that means Costco doesn't have to charge high prices to make a profit on sales.
The company's popularity has increased over time, resulting in a strong track record of earnings growth. Meanwhile, investors have taken notice, and this means the stock also has advanced over the years. Costco has helped many along the road to wealth -- but today, is this stock a multimillionaire maker? Let's find out.
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Costco's biggest markets
Costco is present around the world, but its biggest market is in the U.S. and Canada -- the company has more than 700 of its warehouses in the area and is constantly expanding. Shoppers in these major Costco markets have demonstrated their loyalty with membership renewal rates surpassing 90% year after year. And this brings me to the very important point of profit.
Membership fees are Costco's profit driver -- so the company starts making money before you even set off on your first shopping trip at one of its warehouses. Costco offers two levels of membership -- Gold Star for $65 and Executive for $130 -- and the executive level has been on the rise. In fact, the company sees many Gold Star members upgrading to Executive level. This trend, as well as renewal rates, offers us as investors reason to be optimistic about future revenue growth.
And of course, since Costco relies on membership fees for most of its profit, the company may continue to offer rock-bottom prices to shoppers.
NASDAQ: COST
Key Data Points
The lowest possible prices
Another point that I like about this retail company is the fact that it may perform well over the long run, regardless of the economic backdrop. Tough economic times generally put customers' focus on their wallets, and during these times, they will particularly appreciate Costco's focus on bringing them the lowest prices possible. These customers, after paying a membership fee, may also aim to amortize the expense by shopping as much as possible at Costco.
Now, let's consider our question. Is Costco a multimillionaire maker? Over the past decade, a $10,000 investment in Costco would have grown to more than $60,000 today.
COST Total Return Price data by YCharts
That's an excellent return -- but it's far from the multimillion level. It's important to note, though, that it's extremely rare for an investment in one stock to turn into several million dollars unless the initial investment already was huge.
Instead, the best route to millions involves investing in a variety of strong companies, such as Costco, and holding on for the long term. As part of this strategy, Costco stock could be a multimillionaire maker over time.
