Costco (NASDAQ: COST) continues to fire on all cylinders, reflected through its robust key performance metrics, including comps (comparable sales) growth and membership renewal rates.
Its worth noting that Costco’s comps have increased by 11.1% during the last reported quarter. Meanwhile, comps improved by 10.5% for the first half of Fiscal Year 2022. While Costco’s comps continued to grow at a healthy pace, its membership renewal rate continued to increase and stood at 92%.
Thanks to its solid financial performance, Costco stock has gained about 60% in the past year, outperforming the benchmark index by a significant margin.
What’s Next for Costco?
Despite the ongoing supply chain issues and cost inflation, Costco continues to perform well, as reflected through its robust sales. Further, with inflation running hot, Costco’s strong value proposition could drive its membership base.
Taking note of this, Jefferies analyst Stephanie Wissink stated that in the near term, the “market may be underestimating the strength of COST’s position with higher inflation.”
Wissink added that “assuming inflation persists (into +HSD%), membership could accelerate as consumers more broadly seek value.”
While Costco’s stellar financial and operating performance make it attractive, its premium valuation could limit the upside.
While Wissink acknowledged that Costco’s valuation is high, she maintained a Buy recommendation on COST stock. The analyst views Costco “as a compounder of value, with incremental sales translating directly into profit outperformance.”
Wall Street’s Take
Along with Wissink, most Wall Street analysts have a bullish outlook on COST stock. It has received 12 Buy and four Hold recommendations for a Strong Buy consensus rating. However, due to the surge in its price, the average Costco price target of $581.07 implies just 2.3% upside potential from current levels.
The Bottom Line
Costco’s stellar comps, high membership renewal rates, value proposition, and growing e-commerce capabilities bode well for growth. However, Costco stock is not cheap, which could restrict the upside.
Nevertheless, hedge funds have been accumulating Costco stock. Per TipRanks’ Hedge Fund Trading Activity tool, hedge funds increased their holdings in Costco by 264.7K shares in three months.
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