COSTCO – A dinasour in retails

Stock Trade Idea

Costco continues to distinguish itself as a retailer with steady growth and a deep connection to value-conscious consumers. The company’s financial resilience is exemplified by the $15.00 special dividend issued last year—the fifth such payout since 2012. This move underscores its robust cash flow and disciplines financial management.

Operationally, Costco’s execution remains impeccable, as evidenced by strong foot traffic and impressive membership renewal rates, key pillars of its business model. With these factors in mind, a 12-month price target of $1,100 is possible, reflecting our confidence in Costco’s sustained performance and market relevance. Key Financial Metrics:

• Revenue (FY2023): ~$240 billion, reflecting steady ~7% year-over-year growth.
• Earnings Per Share (EPS): ~$14.20.
• Free Cash Flow (FCF): Over $6 billion, showcasing strong cash generation.
• Gross Margin: ~13%, reflecting the low-margin, high-volume retail model.
• Net Margin: ~2.5%, consistent with warehouse retail industry standards.

Valuation Metrics:

• P/E Ratio: ~38x, higher than the retail industry average, reflecting strong growth expectations.
• PEG Ratio: ~2.3, indicating a premium valuation but justified by steady revenue and earnings growth.
• Target Price: $1,100, reflecting confidence in Costco’s operational resilience and growth potential.

Technical Analysis

As of January 18, 2025, Costco Wholesale Corporation (COST) is priced at $943.19, marking a 2.56% gain from its last closing value.

The 20-day exponential moving average (EMA) is positioned at $935.19, while the 50-day EMA is slightly higher at $935.81. Both indicators suggest a favorable ‘Buy’ signal.

RSI is currently at 52.42, the RSI reflects a neutral market stance, indicating neither overbought nor oversold conditions.

The Moving Average Convergence Divergence (MACD) is currently at -7.47, signaling a potential ‘Sell’ momentum.

Costco has remained in a balanced trading range over the past three months. In January 2025, the stock has shown consolidation, fluctuating within a zone between $905 and $943.

Bullish Scenario: Should Costco hold above the $943 mark, the next targets would be $985, followed by $1,100.

Bearish Scenario: In the event of a pullback, key levels to watch for potential buying opportunities or put-selling strategies include $929, $887, and $859.