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Shares of Costco Wholesale Corporation (NASDAQ:COST) continue to move sharply up on strong sales and key growth figures. Shares have increased 22% on the calendar year and trade less than 1% away from all-time highs. Despite this rise, I believe the company has more growth, and international expansion continues to be the key to shares going higher.

Back in October of 2012, I highlighted five reasons to invest in Costco. The reasons given were:

  • Continued international expansion
  • United States market opportunity (439 stores vs. 615 Sam's Clubs)
  • Share split possibility
  • Room for dividend growth
  • Economy

Since that article, shares are up over 25%, and the first bulletin point is holding true and is the main focus here. Back in that article, Costco had just completed its fiscal 2012 year and ended with 608 stores. Here is a look at the number of stores then compared to the number given at the end of fiscal 2013:

Stores End Fiscal 2012

Stores End Fiscal 2013

United States/Puerto Rico

439

454

Canada

82

85

Mexico

32

34

United Kingdom

22

25

Japan

13

18

Taiwan

9

10

Korea

8

9

Australia

3

3

Total Stores

608

638

As you can see, with the exception of Australia, every regional area has seen an increase in the number of stores at the end of fiscal 2013. Same store sales were up 6% in the United States and also 6% in international markets. The company reported total revenue of $102.9 billion and earnings per share of $4.63. Plans call for the addition of 11 more stores in calendar 2013.

The big news this past week was Costco's expansion into France. Reports call for 15 stores to be opened in France in the short term, with the first store set for a 2015 launch. This marks the company's first expansion into continental Europe. This is big news for Costco and its shareholders as the company is clearly seeing an opportunity in Europe.

As Costco reaches a saturation point in the United States (500-700 stores), it will need to grow in other strong countries. The creation of the brand in France should do well with existing stores nearby in the United Kingdom and the strong results other new entries have seen. Costco could easily reach 1000 total stores by opening 10-20 stores in large countries like Germany, Netherlands, Italy, and Spain. The company faces competition, but could begin its growth through a series of small acquisitions.

Another key catalyst for Costco could be a split of Wal-Mart (NYSE:WMT) and Sam's Club. While I don't see this move happening anytime soon, pressure is starting to hit the giant retailer to spin-off its membership based Sam's Club brand. While some see this as a negative for Costco, given the direct competition and ability to grow through acquisitions and expansion, I remain positive. I think a split of Wal-Mart and Sam's Club would provide the market with two very different companies. Wal-Mart would be a slow growing, high dividend paying company trading at a low price to earnings valuation. Sam's Club, on the other hand, with strong growth and a better market appeal would trade with a high price to earnings. This could increase the valuation on Costco, given it has the higher sales in fewer stores across the nation.

This past week, Sterne Agee upgraded shares of Costco with a new price target of $144. This implies shares are undervalued by almost 17%. Shares trade with a high valuation at the given time, so investors may want to wait for a pullback to jump in to this retailer. With expected earnings per share of $4.98 and $5.53 over the next two fiscal years, Costco trades with respective price to earnings of 24.7 and 22.3. Rival Wal-Mart trades with much lower valuations of 15.2 and 14.0 respectively.

Costco does trade with a similar price to sales ratio of 0.50 to its larger rival Wal-Mart. Costco is expected to grow revenue over 8% each of the next two fiscal years. With strong international growth, these numbers could creep up to double digits. Within six years, annual revenue could hit $200 billion. Wait for a pullback, but don't be afraid to buy this triple digit stock, as the international expansion is only at the beginning. Shares could be trading for $200 within five years.

Source: Costco Shares Could Hit $200 In Five Years With International Expansion