When consumers look for value, a trip to Costco Wholesale Corp. NASDAQ: COST is frequently on the agenda. But as investors have been looking for value in December, COST stock has fallen out of favor. Shares of Costco stock are down about 2.2% for the month as of December 27. However, the stock is down over 6% after hitting a high of around $1,007 prior to the company’s earnings on December 12.
Trading at over 52x forward earnings and with a return on equity of around 33%, investors may be correct in thinking that it’s time to take some profits off the table. Even with the December slide, COST stock is still up about 42% in 2024, which outpaces the S&P 500 index and other retail stocks.
But with the recent inflation indicators showing that consumers will continue to deal with higher prices in 2025, is there more upside for Costco stock? Let’s look at the reasons why COST is still a buy.
1. Customer Retention Remains Strong
In September 2024, Costco increased its membership fee for the first time in seven years—about two years later than the timeline of past price increases.
Historically, Costco has enjoyed a retention rate of over 90% when it has increased its membership fee. However, there were legitimate concerns about this increase as consumers are looking to cut costs wherever they can.
So far, those concerns look unfounded, as the company is seeing no significant loss of membership. In fact, it reported a 7.75% increase in membership in the quarter. Furthermore, Costco expects to realize most of the financial benefits from the increase, which will go right to the company’s bottom line in 2025 and 2026.
2. Expansion Plans Continue
In the past year, Costco has opened 17 new brick-and-mortar stores, bringing its total to just shy of 900 stores across 14 countries. 80% of those stores are in North America, highlighting an opportunity for future growth.
But the company’s expansion is not just about its bricks-and-mortar footprint. It is also making strides in its e-commerce business. In its most recent quarter, the company reported a 21% increase in its e-commerce business, supported by a 32% increase in downloads for the company’s mobile app.
And building out its e-commerce business will also create opportunities for Costco to target its customers in a new way with an ad network the company is building.
3. Significant Cash Balance Generation
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