Cosco (NASDAQ: COST) continues to run at full steam, as evidenced by its strong key performance indicators, including comp growth (comparable sales) and membership renewal rates.
It should be noted that Costco’s rates have increased by 11.1% in the last quarter. Meanwhile, comps improved 10.5% for the first half of fiscal 2022. As Costco’s comps continued to grow at a healthy pace, its membership renewal rate continued to decline. increase and stood at 92%.
Thanks to its strong financial performance, Costco stock has gained about 60% over the past year, outperforming the benchmark by a significant margin.
What’s next for Costco?
Despite ongoing supply chain issues and cost inflation, Costco continues to perform well, as evidenced by strong sales. Plus, with rampant inflation, Costco’s strong value proposition could boost its membership base.
Taking note of this, Jefferies analyst Stephanie Wissink said that in the short term, “the market may underestimate the strength of COST’s position with higher inflation.”
Wissink added that “assuming inflation persists (in +HSD), buy-in could pick up as consumers look more broadly for value.”
Although Costco’s excellent financial and operational performance makes it attractive, its premium valuation could limit the upside.
While Wissink acknowledged that Costco’s valuation is high, it maintained a buy recommendation on COST stocks. The analyst sees Costco “as a driver of value, with incremental sales translating directly into earnings outperformance.”
The Taking of Wall Street
With Wissink, most Wall Street analysts have a bullish outlook on COST stocks. It received 12 buy recommendations and four hold recommendations for a strong buy consensus rating. However, due to its surging price, Costco’s average price target of $581.07 implies only 2.3% upside potential from current levels.
Costco’s exceptional rates, high membership renewal rates, value proposition and growing e-commerce capabilities bode well for growth. However, Costco stock is not cheap, which could limit the upside.
Nonetheless, hedge funds have been hoarding Costco stock. According to TipRanks’ hedge fund trading activity tool, hedge funds increased their holdings in Costco by 264.7,000 shares in three months.
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