Costco (COST) Has a Clear & Deliberate Long-Term Strategy – Target (TGT), Wal-Mart (WMT)

A methodology that works

In order, though, to achieve an increase in membership income, the company must drive loyalty through a consistent pricing scheme and store experience. In recent weeks, Costco Wholesale Corporation (NASDAQ:COST) has received a lot of attention for the high wages it pays to its employees. These high wages allow Costco to create a pleasant store experience that has traditionally kept customers coming back — for prices and for the store itself. Costco also has been able to drive revenue through its minimal e-commerce risk. The nature of Costco’s business is to sell things in bulk and in doing so the company has been hit less than its peers by consumer’s new emphasis on online purchases. Both Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT)have seen increased competition from the e-commerce sphere due to a large overlap between the goods sold by big box retailers (i.e. Target and Wal-Mart) and e-commerce purveyors. Costco’s ability to control its profitability through membership fees and its decreased exposure to e-commerce places the company in good step to continue to drive profitability and shareholder value.

TGT data by YCharts

Conclusion

From a valuation perspective, Costco Wholesale Corporation (NASDAQ:COST) is by no means “cheap,” but the company is trading at PEG ratio’s that are inline with its peer group and earnings projection. Though the company has a higher forward price/earnings multiple than both Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT), the company has also performed better over the past five years (see chart above) than both of them. This makes Costco a strong long-term investment. Though market fluctuations may result in Costco losing market capitalization, the company is in a strong position to compete in the new world of retail. If Costco can continue to drive membership and subsequent customer loyalty, there is incredible growth potential for Costco both in terms of stores and stock returns.

The article This Retailer Has a Clear & Deliberate Long-Term Strategy originally appeared on Fool.com and is wrtten by Justin  Weinstein.

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