Where Will Costco Stock Be in Three Years?

Costco Wholesalefirms(Costco)Wholesale NASDAQ Resonancestock (market)(Code: COST)It's a hot stock on Wall Street, and for good reason. The warehouse club retail giant has outperformed the market by expanding its share in a highly competitive industry. Costco's growth rate rarely disappoints, and its earnings are much more stable than those of its peers thanks to steady subscription revenue.

These competitive assets were enough to send Costco's stock price up to about three times that of Big Rock over the past few years. In fact, Costco's stock price has almost doubled in the past three years, andStandard & Poor's 500The index rose by 25% during this period.

But will the company be able to maintain this momentum in the future? Let's take a closer look.

Costco's business will grow

The surest way for Costco to realize its shareholder return is to increase sales at a faster rate than its peers. It's been doing a good job of that lately, with same-store sales up 61 TP3T in the most recent quarter, whileWal-MartIt has only grown by 41 TP3T.

Both retailers rely on price leadership to drive customer traffic. However, Costco has a few advantages over its larger competitors that could lead to higher returns for investors. First of all, Costco's mix of necessities and luxury goods allows it to cater to the needs of a variety of shoppers.

Costco is also showing signs of activity. Its recent introduction of precious metals such as gold and silver has helped the e-commerce niche expand at a rapid rate of 18% in the last quarter. Over the next few years, Costco will continue to build on these strengths and ideally maintain its same-store sales growth at the top of the industry.

Membership Indicators

Costco is a membership club and, to a lesser extent, a retailer. Most of its earnings come from membership fees, which are far less volatile than profits from merchandise sales.

That's why Costco's membership metrics will change in the coming years. Costco recently set a record renewal rate of 93%, which means that essentially all users are getting enough value from their memberships. If the company can maintain such a high renewal rate over the next few years, its stock price will likely continue to outperform the broader rock. Especially considering that Costco will almost certainly raise its annual fees in 2024 or 2025. Higher annual fees, combined with increased memberships, signal a big increase in the retailer's profitability.

Stocks Currently Concerned About Costco

Even if Costco makes progress on these key growth and earnings initiatives, its share price action could still disappoint investors. After all, the stock is currently trading near its all-time high of 1.3 times annualized sales. Wal-Mart andTajikistanThe premium is only about half of this figure.

Therefore, investors may want to watch Costco stock for the time being, hoping that a downturn in the market will bring a more attractive price for its shares. Granted, you'd be hard-pressed to find a retailer that offers a better mix of growth, stability, and profitability. However, Costco's high stock price limits the returns you can expect from owning this stellar company for years to come.

Consider retail peers whose shares don't command such a premium, such as Target, and keep a close eye on Costco stock for your next opportunity to buy shares at a discounted button price.

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Demitri Kalogeropoulos owns shares of Costco Wholesale Corporation.The Motley Fool holds recommendations for Costco Wholesale, Target and Walmart.The Motley Fool has a disclosure policy.

Where Will Costco Stock Be in Three Years? This article originally appeared in The Motley Fool.