Costco Wholesale Corporation (COST): How Is This Retailer Leading the Race?

Wal-Mart is one of the cheaper stocks in the retail industry with a TTM P/E of around 15, compared to Costco Wholesale Corporation (NASDAQ:COST)’s TTM P/E of around 25. Being a massive company, its first quarter results were pretty much in line with expectations. It reported an increase of 4.6% in its earnings on a y-o-y basis and announced expected EPS for the second quarter between $1.22-$1.27, compared to $1.18 last year. Sales for its U.S. business stayed flat, whereas comp sales dipped by 1.4%. As with Target, Wal-Mart also lost out on sales due to crummy weather conditions. Looking at e-commerce operations, Wal-Mart did better than Target and Costco, with a growth of more than 30%.

Final words

As I mentioned above, Costco Wholesale Corporation (NASDAQ:COST) is currently trading at a TTM P/E of around 25, which analysts believe is an overvaluation. However, I do not think that the stock is overvalued. Costco’s business model is built on strong fundamentals that include a fantastic network of members. The membership model is unique to Costco and the company has taken complete advantage of this by providing a beautiful shopping experience. Its strategy of raising the membership fee by small amounts has paid off handsomely, as can be seen in its quarterly results.

Additionally, Costco has been in the right place, even during challenging times. What I mean to say is that it has created huge value for its shareholders during retail’s rough patch. Also, I have a lot of confidence in Costco Wholesale Corporation (NASDAQ:COST)’s management team, which has executed some of the finest strategies for the company. Currently, the management is working on the company’s e-commerce operations, and with e-commerce sales up over 20% in the U.S & Canada, it’s definitely going well.

Hence, I think it makes sense to buy Costco if you are looking for some stability in the retail industry.

The article How Is This Retailer Leading the Race? originally appeared on Fool.com and is written by Mihir Mehta.

Mihir Mehta has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale. Mihir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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