Costco Wholesale Corporation (COST): Should You Pay a Premium for This Retail Stock?

Primarily, this arises from the low prices that Costco Wholesale Corporation (NASDAQ:COST) offers. By capitalizing on its huge scale, as well as its minimal spending on store ambiance, the company is able to offer prices that are impossible to match by any supermarket or department store. In addition, Costco keeps refreshing its brands and offerings so that there is a certain amount of excitement among shoppers in keeping a look out for what’s new.

Finally, Costco Wholesale Corporation (NASDAQ:COST) keeps its stores well-staffed and its employees motivated with good pay and benefits. This ensures stocked shelves and proactive staff to guarantee customer satisfaction. We have already seen the extent of trouble these softer issues can create with Wal-Mart Stores, Inc. (NYSE:WMT). On account of its customer service issues and empty shelves, Wal-Mart ended up losing lot of sales to rival retailers, including Costco.

Ancillary services

A big opportunity lies in Costco’s small ancillary services, things like the gas stations, pharmacies, food courts, etc. These services are rapidly gaining popularity and currently account for almost one-fifth of the company’s total revenue.

The convenience of these services serves as an added attraction for shoppers frequenting the Costco Wholesale Corporation (NASDAQ:COST) stores. In terms of actual dollars spent per person, we find the annual growth in ancillary services is approximately 10 times the growth in spending on core merchandise.

Last word

Given its superior growth prospects, Costco does not seem too expensive at its current valuation. The increasing popularity of this warehouse club will allow it to post healthy revenue and earnings growth going forward. Both investors and analysts have high expectations from the company, and through good business practices and strategic initiatives management, it is ensuring that the expectations are met.

The article Should You Pay a Premium for This Retail Stock? originally appeared on Fool.com and is written by Eshna De.

Eshna De has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale. Eshna 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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