I’m a big fan of Costco store, and also an investor of the stock. Even Charlie Munger loves the stock and said it is the stock he will never sell and he also sits on Costco’s board. I think there are 3 advantages holding the stock:
- Best value products
- Customer loyalty
- Special dividends to the shareholders
First, Costco provide bulk products at cheaper price. In my opinion, the average product price is probably the cheapest when comparing with other retailers, including Walmart, Kroger and Target. Costco achieves this by focusing on volume instead of margin. In large scale, they have better bargaining power with their vendors and they can produce products more efficiently. These value help the company achieve durable brand and wide moat, which Warren Buffet values most in stocks.
Second, with ~100 million members, Costco has achieved customer loyalty through its membership program. Members need to pay $60 in order to shop at Costco, and the members make them shop at Costco over and over again to save money and stock daily products when needed, and even get cheaper gas for their cars. The members are very loyal to the company, the renew rate is 90% in US and 88% globally. It probably because of the “treasure hunt” shopping experience and the value they truly appreciate.
Last but not least, in addition to the regular ~1%, Costco always pays a special dividend when they generate more cash in order to reward shareholders. In 2017, the company paid its shareholders $7 per share.
Last year, Costco has opened it’s first store in Shanghai, China and on the first day there are too many people rush to the store that they cannot handle. On the first day of opening, more than 180,000 peope sign up for the membership. With the good start, I believe Costco’s China story will be more interesting as they plan to open more stores in China in 2021.
As for the stock price, the current $303 is not cheap with PE ratio=36. But considering Costco stock is a stable one with 52 week rance between 262–325, I think at the ~$300 price level is good to get started with a small position. As people seek for value more than before in the pandemic and after-pandemic period, value products will be the favor or consumers. Therefore, the stock would be a good one when we are dealing with uncertainties and can be the safety harbor of investors.
Reference:
- CNBC
2. WashingtonPost
