I think rising fuel prices driven by the Ukraine War could drive Costco’s growth.
Mr. Market loves Costco (COST). He paid $555.71 for Costco Wholesale (COST) on 25 March 2022.
Hence, investors will ask how much money is Costco making and if the numbers justify the price? My answer is maybe because Costco is making more money.
For example, Costco reported a quarterly gross profit of $6.387 billion on 28 February 2022. The quarterly gross profit rose from $5.891 billion on 28 February 2021. Similarly, the quarterly operating income rose from $1.34 billion on 28 February 2021 to $1.812 on 28 February 2022.
Costco’s most Valuable Asset
Costco (NASDAQ: COST) added value over the past year. For instance, Costco’s cash and short-term investments grew from $9.254 billion on 28 February 2021 to $12.296 billion on 28 February 2022.
Similarly, Costco’s total assets grew from $54.918 billion on 28 February 2021 to $63.078 billion on 28 February 2022. Thus, Costco’s value is growing.
I think Costco’s most “valuable asset” is the tens of millions of Costco card holders. That asset is growing. For instance, Statista estimates Costco’s worldwide membership grew from 98.5 million in 2029 to 105.5 million in 2020 to 111.6 million in 2021.
I consider the members an asset because each of them pays $60 or $120 a year for the privilege of shopping at Costco. I calculate Costco could generate $6.696 billion a year if each member buys a $60 Gold Star Membership. Note: I believe the actual number is higher because many of those members pay for a $120 a year Executive Membership.
Costco’s memberships generate what Warren Buffett calls float. In Buffett’s world, a company generates float by charging a regular membership fee or premium. Hence, Costco generates float by selling memberships.
Importantly, the memberships obligate people to drive several extra miles to shop at Costco because they have to justify the membership.
How Fast is Costco Growing?
Costco Wholesale (NASDAQ: COST) is growing. For example, Costco’s revenues grew by 14.64% in the quarter ending on 28 February 2022.
Impressively, Costco’s revenues grew by 45.05% in the quarter ending on 31 August 2021. In comparison, Costco’s revenues grew by 21.5% in the quarter ending on 30 April 2021 and 14.58% in the quarter ending on 28 February 2021. The revenue growth rate rose from -15.18% in the quarter ending on 31 May 2021 and fell to 12.50% in the quarter ending on 30 November 2021.
Consequently, Costco’s revenues grew from $44.769 billion in the quarter ending on 28 February 2021 to $51.904 billion in the quarter ending on 28 February 2022. Costco is a growing company that generates enormous amounts of revenue.
I think the revenue growth shows Costco can survive, grow, and thrive in the age of Amazon (AMZN). Costco is a fast-growing retailer, even as America’s shopping habits shift online.
Can High Gas Prices Drive Costco’s growth?
I think rising fuel prices driven by the Ukraine War could drive Costco’s growth.
Notably, AAA estimates the average price of a gallon of regular gasoline in the USA was $4.243 on 25 March 2022. Similarly, the American Automobile Association (AAA) estimates the average price of a gallon of diesel fuel in the USA was $5.079 on the same day.
Costco (COST) can cash in on high gas prices through its reputation for cheap fuel. For example, GasBuddy claims the Costco at 1471 Havana Street in Aurora Colorado was charging $3.75 for a gallon of regular gasoline on 20 March 2022.
Current events give people a powerful extra reason to renew or buy a Costco membership - lower fuel prices. I predict more growth at Costco and long lines at Costco pumps if the Ukraine War continues.
Is Costco a value investment?
I do not consider Costco (NASDAQ: COST) a value investment because of its high stock price of $555.71 on 25 March 2022.
However, I consider Costco an excellent stock people will enjoy holding. For example, Costco will pay four 79₵ dividends between May 2022 and February 2023. Overall, Costco shares offered a forward dividend of $3.16 and a forward dividend yield of 0.57% on 25 March 2022.
If you want a stock that can deliver dividend income and share value growth, you need to investigate Costco. I consider Costco a widow’s and orphan’s stock because of its growth and dividend yield. If you need income from your stocks, you need to investigate Costco (COST).
Originally published at https://marketmadhouse.com on March 25, 2022.
