On 5th December 1985, Costco stock started trading at $10 earnings per share. Now, the company brings in $371 per share. It’s a massive gain by all means. Over the past years, the company’s compound annual growth rate has also reached 16.7 percent. This calculation is without considering the dividends. For the same duration, the S&P 500 has generated an approximate annual return of 8.3 percent. The gap is discernible, and stock market analysts and investors have noticed it.
If you had invested $1000 in Costco stock, today you would have had around $223,000. Yes, you read that right. Let’s look at how the company managed to grow at this unbelievable rate.
Costco Stock Owes Its Gains To Membership Program
As per 30tg August reports, Costco has a massive number of 800 stores in total. Most of these stores are located in the US, Mexico, the United Kingdom, Japan, and Canada. It has become one of the leading names in the retail warehouse industry.
A major reason for this tremendous success is thanks to Costco’s low priced products with high quality. It’s not a surprise that the company has a massive base of loyal customers.
In a public statement, Craig Jelinek, the CEO of Costco, said that Costco could lower its prices on high-quality goods by cutting all the extra costs that are usually connected with conventional retailers and wholesalers. Some of these extra costs come from salespeople, delivery charges, accounts, billing, and fancy and luxurious buildings. The CEO further said that the company’s motto is to follow a tight schedule and operation technique, which has proved to be foolproof. This, in turn, helps Costco reduce its prices for all its members.
Costco stick’s recent net sales for this FY came to $163.2 billion, which makes Costco one of the larger operating companies across the globe. The growth in Costco’s value will further benefit its customers. As the company expands its stores, it can save enough expenses to further lower its prices or give its members more attractive deals. This fool-proof operating cycle that Costco has built is what is taking this company to new heights.
Currently, the company has over 58.1 million members. And the company’s main source of income is its membership program. Since the company’s prices are ridiculously low, it basically does not make any profit from sales. And this is why we said that Costco stock gains have everything to do with its membership fees and programs. Historically speaking, this strategy has hugely benefited Costco in the stock market.
Costco In 2020 Stock Market
This year has not been kind to anyone. Several businesses were forced to shut down. However, this company’s low prices have continued to attract its loyal customers and more even during this pandemic.
The stock market further rewarded Costco stock with a multiplied 42 price to earnings ratio.