{"id":29,"date":"2019-02-19T14:57:11","date_gmt":"2019-02-19T11:57:11","guid":{"rendered":"https:\/\/roboforex.com\/blog\/?p=29"},"modified":"2022-08-23T17:37:08","modified_gmt":"2022-08-23T14:37:08","slug":"costco-risks-and-long-term-analysis","status":"publish","type":"post","link":"https:\/\/roboforex.com\/blog\/2019\/02\/19\/costco-risks-and-long-term-analysis\/","title":{"rendered":"Costco: Risks and Long Term Analysis"},"content":{"rendered":"\n

Costco <\/strong>(NASDAQ: COST<\/strong>) includes large stores and warehouses with domestic appliances, consumer electronics, clothes, and books. Besides, Costco chain includes gas stations, tire shops, and other services. It is not only a food&beverages company. This is why, even though Food&Bev sector is doing good, this won't mean Costco will be prospering.<\/p>\n\n\n\n

It is important to understand how Costco gets\nits profits and how it manages the competition against Amazon<\/a>, Walmart<\/a>, and\nSam’s Club. Amazon is reducing shipping costs, Walmart is developing its\ninfrastructure, which makes Costco's position quite shaky. Costco has a very\ngood retention model, though: with some of the lowest prices in the industry,\nthe company also sells member cards which provide additional discount. The\ncompany's priority is analyzing the food product demand, as those who buy foods\nfrom Costco are also active in other sectors.<\/p>\n\n\n\n

So, why would the customers buy wholesale,\nespecially when the best before date is quite near? The research showed most\nCostco's customers have large families, and that is why they are interested in\nwholesale. 80% young single people tend to create families, and this will lead\nthem to Costco (35% of the customers are between 18 and 29). Those who already\nhave big families may lose family members due to divorce or accident, but even\nin this case the customer gets used to the store and continues using it. If the\nparents buy everything in Costco, their children are likely to do the same, and\nthis way the customer base not only doesn't decline, but even grows.<\/p>\n\n\n\n

<\/span>Will crisis hit Costco?<\/span><\/h2>\n\n\n\n

Another thing is saving up. During any crisis<\/a>,\nevery single cent counts, and this may lead people to Costco as well. Even now,\nhowever, when there's no crisis, Costco customer base is over 94.30M people. <\/p>\n\n\n\n

Costco stores are in 11 countries, with the population\ntotaling 846M, and this may increase to 906M by 2020. This way, Costco may\nincrease its customer base by 7% only due to the population growth. Overall,\nthe company has 762 stores throughout the world, with 527 being in the US,\nwhich yields 80% of total profits. The population growth in the US will\nguarantee revenue growth for Costco.<\/p>\n\n\n\n

Costco membership costs $60 per year. Every\ncustomer will have to buy a lot to make this cost effective, which makes this\nbusiness model quite competitive and allows the company to even beat the online\nstores. Meanwhile, Costco also started selling goods online, and offers free\nshipping once the minimum purchase amount is achieved. Large queues in Costco\nwarehouses also show that the customers are interested in this store chain;\nthis, in its turn, attracts suppliers that want their goods delivered to\nCostco. The competition among the suppliers makes them lower the margin, which\ngets compensated with the increased sales. The retail markup is usually 25%,\nwhile Costco made it 14% in order<\/a> to get more customers. This allows the\ncompany to offer some of the lowest prices.<\/p>\n\n\n\n

<\/span>Struggle for clients<\/span><\/h2>\n\n\n\n

Thus, Food&Beverages is a sector used by\nCostco for attracting new customers. Stagnation in this sector is only possible\nin case the population decreases, or people in all countries go on a diet,\nwhich is very much unlikely. On the other hand, food oversupply may be a\nnegative factor for the producers, but Costco is not a producer.<\/p>\n\n\n\n

Besides, Costco also won because some of its\ncompetition were having issues. <\/p>\n\n\n\n

For instance, Sears Holdings Corporation, which\nowned Kmart and Sears, got bankrupt in October 2018. Meanwhile, Sam’s Club,\nCostco's major competitor, converted 63 of their stores into distributing\npoints. All this was positive for Costco and boosted its revenues. The\nmanagement is also doing good, which means the only risk lies in the\ncompetition. However, the company is winning against the competitors currently,\nthanks to the low prices.<\/p>\n\n\n\n

<\/span>Costco stocks price analysis<\/span><\/h2>\n\n\n\n

As for the stock price, there is some risk\nhere. Costco's P\/E<\/a> is 29.44, and while this means the company is somewhat\nunderpriced, the average P\/E is much lower, 18.75. In this case, Walmart stock\nis much more attractive, with the P\/E at 19.88. However, one should understand\nthat once the sector gets a boost, Costco will take the lead.<\/p>\n\n\n\n

The long term fundamentals show that Costco is\na good investment. Both the news and the financial indicators<\/a> may not always be\nright, though, as they are all based on the past data. It often happens when a\nstock has great fundamentals, but still loses its value just because the\ninvestors are booking profits. This is why investor sentiment and behavior is\nvery much important. The chart shows the price is likely to correct to $180,\nwith the P\/E going down to reach the average or even beyond. Still, if the\nprice manages to stay above $220, this will mean the investors are ready to\ntake risk and buy even at this high price. If this happens, one should think\nabout adding this stock to their portfolio.<\/p>\n\n\n\n

\nOpen Trading Account<\/a><\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

Costco (NASDAQ: COST) includes large stores and warehouses with domestic appliances, consumer electronics, clothes, and books. Besides, Costco chain includes gas stations, tire shops, and other services. It is not only a food&beverages company. This is why, even though Food&Bev sector is doing good, this won't mean Costco will be prospering.<\/p>\n","protected":false},"author":22,"featured_media":442,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-29","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis"],"yoast_head":"\nCostco: Risks and Long Term Analysis - RoboForex Blog<\/title>\n<meta name=\"description\" content=\"Costco includes large stores and warehouses with domestic appliances, consumer electronics, clothes, and books. 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