While bulk retailer and discount chain Costco (NASDAQ:COST) is best known for a few things, mostly low prices, its food court, and that killer bit from “Idiocracy,” it’s increasingly known for one more: gold. Costco’s sales of gold have been brisk, brisker than some would have seen coming. And now, investors are rewarding Costco with a fractional boost in shares after Wells Fargo analysts took a look at just how brisk those sales were.
Wells Fargo, via analyst Edward Kelly, figured that gold sales at Costco are adding somewhere around 1% to comparable sales and as much as 3% to general merchandise sales. However, the contribution to profit here will be minimal, as gold generally sells for a set price with a small markup for a “premium.”
The combination of growing social media attention and rapid sell-outs of product online when it’s offered there suggests that there are plenty of interested gold buyers. It certainly doesn’t hurt that gold prices have been on the rise of late, further drawing attention toward the hedge that is precious metals.
Eyes on the Competition
Costco is also intimately aware of its competition in Sam’s Club, the other major bulk retailer. In fact, reports note that Costco is planning an expansion effort to address Sam’s Club’s plans to do likewise. Sam’s Club plans to open another 30 locations in the United States over the next few years, and while Costco isn’t making specific projections on store openings, it noted that it’s already opened an average of 23 units a year for several years. Stepping up its pace, therefore, to match or even exceed Sam’s Club might be an easier ask than expected.
Is COST a Buy, Hold, or Sell?
Turning to Wall Street, analysts have a Strong Buy consensus rating on COST stock based on 20 Buys and six Holds assigned in the past three months, as indicated by the graphic below. After a 48.99% rally in its share price over the past year, the average COST price target of $777.08 per share implies 8.9% upside potential.
