Costco (Nasdaq: COST) reported a solid quarter yesterday, but some investors balked at shares of the purveyor of bulk merchandise. For anybody more in tune with Costco's true strengths, that seems like a major mistake.
Net income increased 16.4% to $348 million, or $0.79 per share. Revenue jumped 11% to $20.5 billion. Same-store sales increased 7% (or 4% without gasoline sales). International sales were a highlight; foreign comps increased 12% (or 8% without the gasoline impact). Apparently, Costco's not only luring U.S. customer traffic, but tapping into growth abroad as well.
Costco's making a better show of things than discounter Wal-Mart (NYSE: WMT). The retail giant has recently struggled to reinvigorate flagging sales in the U.S., where its comps fell by 1.1% in the latest quarter. Rival Target (NYSE: TGT) isn't in such shabby shape, but still, its same-store sales weren't exactly on fire, rising just 2.4% in its most recently reported quarter.
In comparison, warehouse discount rival BJ's Wholesale (NYSE: BJ) couldn't boast quite as impressive a quarter as Costco did. Charges may have whittled down its profits, but its same-store sales weren't as robust, either, increasing by 3.8%, or 1.7% without gasoline impact. BJ's recently announced that it may consider putting itself up for sale.
In a demonstration of Mr. Market's fickle ways, Costco's shares dropped in yesterday's trading. That's probably not too surprising, since its shares have been rising consistently lately, sporting a potentially premium price tag. Costco trades at about 24 times earnings, compared to Wal-Mart's price-to-earnings ratio of 12 or Target's P/E of 13.
I bought Costco for my Rising Stars portfolio in December on the strength of its excellent management, which takes employees, customers, and many other stakeholders into account. I consider it a "gold-standard stock," and in my opinion, it deserves a premium price. A company like Costco is so well-run -- and so well-loved by its customers -- that it's simply less risky than its rivals.
The market's temporary bearishness simply gives Fools an opportunity to snag Costco shares at a discount. Investors shopping for a high-quality stock for the long term shouldn't underestimate this great choice.
