Costco (NASDAQ:COST) has grown significantly over the past few years and has become a well-established brand in the industry. In this article, I will discuss the various factors that I believe make Costco a solid investment opportunity. These include an aggressive growth plan, low debt, an attractive stock price, along with a positive financial outlook and impressive performance indicators. I will focus on these details below.
Costco has established itself as a strong contender in retail. While it competes with Wal-Mart (NYSE:WMT), it dwarfs competitors like Target (NYSE:TGT) in terms of volume. The returns and earnings have attracted investors because these indicators suggest that the company is stable. There is a lot of potential for growth in the future, which makes this stock a strong option worth considering. The risk factor is not high either, another reason to suggest that it would help in building a diversified portfolio.
The stock is currently trading at a price close to $88 per share. The price has been fluctuating and had experienced a huge slump as well. But now it appears to be more stable and there is a high chance that it will increase further. During the last 52 weeks the stock traded at a price as low as $69 per share and as high as $89 per share. Market capitalization at the current price is nearly $38 billion with an average trading volume of more than 2 million shares. There are approximately 435 million shares outstanding in the market. Earnings per share (EPS) is above $3, and the price-earnings (P/E) ratio is almost 26. The dividend yield is 1.1% and the last dividend paid by the company was 24 cents per share. These indicators show that the company is quite stable, another reason why this stock is popular among investors. The debt-equity ratio is 0.19, while the beta is 0.66. This signifies that the stock is a relatively safe investment option. It is not volatile and the debt has been well managed.
The future of the company looks strong and I expect steady returns. Sales and income are growing, which makes it possible for Costco to stretch its profit margins and widen its competitive moat. Those investors who have already added this stock to their portfolio should hold it for solid returns. The company has extensive plans to grow and expand itself. These plans will be implemented this year, which will likely have a positive impact on its stock price. Once this happens, investors would be able to make capital gains as well. Additionally, as the global markets recover from the financial and economic crisis, retailers have started to report better sales. Costco Wholesale reported that its sales have increased by 7% during this quarter, which is better than expected.
Wal-Mart Stores : Wal-Mart, which owns Sam's Club, is the largest competitor of Costco. Wal-Mart is based in the United States but targets the global market. This multinational is categorized as one of the largest public corporations in the world. Market capitalization based on current price is more than $202 billion, and the average trading volume is close to 9 million shares. Earnings per share is above $4 and the price-earnings (P/E) ratio is nearly 13. The dividend yield is almost 3% and the last dividend paid by the company was 40 cents per share. The debt-equity ratio is 0.75 while the beta is calculated at 0.34. This signifies that Wal-Mart is a safe investment and its debt is not very high.
The stock has been categorized among the relatively cheap stocks, which have offered higher dividends. This is one major reason why Wal-Mart is one of the most popular investment options in the stock market. Investors are holding for returns and earnings but there are no significant chances of capital gains available here. The stock is quite stable and offers steadier returns but it does not appeal to those investors who are looking for high returns with an aggressive strategy. In my opinion, this is only an option, which will attract investors who are risk averse and prefer more stable investments.
Comparison: Costco's shares are currently priced higher than Wal-Mart, but their yield is lower. Earnings per share is lower as well but the price-earnings (P/E) ratio is higher. Wal-Mart's market capitalization and average trading volume have not been matched either. Wal-Mart currently offers better returns to its investors. However, Wal-Mart carries more debt. Beta for both companies suggest they are relatively safe investments. The only major difference here is that Wal-Mart's current situation suggests that it will keep offering steady returns to its investors while Costco has a more proactive strategy. As mentioned above, Costco has plans to expand and widen its competitive moat. I believe its stock price will increase and investors will see capital gains. This option is not available for Wal-Mart's investors. Its stock price will most likely not fluctuate by a huge margin and therefore, capital gains will not be high. I believe that Costco would be the best option of the two right now, as the company has high growth potential. I believe investors will see increasing returns and earnings in the next two quarters.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.