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Large and mega cap stocks have performed well in 2024. Retail giant Costco (NASDAQ: COST) hasn’t missed the party with stock up 32% so far this year. The membership warehouse club chain is gaining market share in the United States and showing strong growth in both its in-person and e-commerce businesses, impressing investors.
At $863 per share at the time of writing, this could be a future stock split candidate. Will the stock reach $1,000 by the end of the year, and is it a buy at these prices? Let’s investigate.
Strong growth and an upcoming price increase?
The COVID-19 pandemic has been a boon for retailers like Costco. Sales growth accelerated, increasing annual sales from $150 billion to $200 billion in just a few years. But unlike other retailers, Costco didn’t face a pandemic growth hangover. In fact, the company has continued to experience strong growth, recently surpassing $250 billion in annualized revenue.
Operating profit followed suit with earnings per share (EPS) has increased almost 100% over the past five years. This strong growth has investors speculating that a price increase is coming for Costco’s membership program. Membership currently costs $60 or $120, depending on the level. There are more than 100 million members and the company has not increased the membership price since 2017. Costco typically increases membership fees every five years, meaning the company is overdue for a price increase.
With high profit margins on the memberships themselves, a price increase could also help Costco continue to grow its earnings per share over the next five years.
Forget $1,000 per share; instead, focus on the appreciation
It will take a 16% gain for Costco’s stock price to break into four-digit territory. Considering shares are already up 2x in the first half of 2024, I have no doubt that Costco could surpass $1,000 before the end of the year.
Such a high stock price also makes Costco a candidate for a stock split. Investors have seen it recently Nvidia And Chipotle go through the process and Costco’s last stock split was in 2000.
But investors shouldn’t focus on any of these things. Stock splits don’t matter in the long run. A stock split simply means that there are more shares of the same company available on the market. The actual stock price doesn’t matter; what matters is the appreciation.
And Costco’s valuation has been rising for years. The price-to-earnings ratio (P/E) currently stands at 53, near an all-time high and well above the long-term average of 27.
At this level, investors have very high expectations for Costco’s future growth.
Avoid Costco Stock (For Now)
Costco is a great company. Even with $250 billion in sales in the last twelve months, the company was able to grow comparable sales by 6.5% in the third quarter of 2024 (ending May 12). E-commerce revenue increased 20.7% year over year. Profits should also continue to rise, thanks to its track record of slow and steady growth.
But that’s the problem: slow and steady. Costco is not a hypergrowth stock, but it is valued as a stock with a price-to-earnings ratio above 53.
Forget the stock split. Forget the potential for shares to reach $1,000 in the short term. It doesn’t matter how good a company is if you have to pay too high a premium to buy it: price matters.
Should You Invest $1,000 in Costco Wholesale Now?
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill, Costco Wholesale, and Nvidia. The Motley Fool has one disclosure policy.
Costco is up 32% in 2024: Could the stock split candidate reach $1,000 per share by year’s end? was originally published by The Motley Fool