Key takeaways
View moreCostco appears moderately overvalued based on its high valuation multiples (P/E of 257.67, EV/EBITDA of 35.90) compared to historical averages and industry peers. While the company's strong financial performance, growth prospects, and competitive advantages justify a premium valuation, current multiples seem to be pricing in overly optimistic expectations, especially considering risks such as margin pressure and international expansion challenges.
- Costco's revenue growth is decelerating, but the company is still generating strong sales and membership fee income, with quarterly sales of $63.723 billion for the period ending February 28, 2025.
- The company's profitability is under pressure, as gross margin is decreasing, with a gross profit margin of 12.52% for the quarter ending February 28, 2025.
- Costco's liquidity position is slightly tight, as indicated by the current ratio of 1.00 as of February 28, 2025, which is lower than the industry average of 1.59.
- Costco's solvency position is strong, as indicated by the total debt to total equity ratio of 31.81% as of February 28, 2025, which is significantly lower than the industry average of 408.42%.
- The company plans to open 28 new warehouses in fiscal year 2025, indicating a focus on growth and expansion.
- Costco has generally outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years, with returns of 151.71% compared to XLY's 56.86%.
- Key risks include increased competition, rising costs, cybersecurity threats, and potential declines in membership growth.
- Management projects capital expenditure for the full year is estimated at approximately $5 billion, reflecting investments in new warehouses and infrastructure.
- Costco's net profit margin is significantly higher than the industry average, with a net profit margin of 2.81% for the quarter ending February 28, 2025, compared to an industry average of -6.59%.
- Return on Assets (ROA) for the quarter ending February 28, 2025, is 10.92%, Return on Equity (ROE) is 32.89%, and Return on Invested Capital (ROIC) is 24.30%, all significantly higher than industry averages.
Evaluation summary
Add to research
-
Company Overview:
- Costco Wholesale Corp. operates membership warehouses and e-commerce sites, offering members low prices on a limited selection of nationally-branded and private-label products. Key product categories include foods and sundries, non-foods, and fresh foods, along with ancillary businesses like gasoline, pharmacy, and optical services.
- The company has 890 warehouses worldwide, with 614 located in the U.S. and the remainder in Canada, Mexico, Japan, the UK, Korea, Australia, and other international markets. The membership model is a core part of the business, providing recurring revenue and reinforcing customer loyalty.
- The benchmarks used for comparative analysis include the Consumer Discretionary Select Sector SPDR Fund (XLY). Peers include Target Corp. (TGT) and Walmart, Inc. (WMT).
-
Financial Performance:
- Costco's revenue has shown consistent growth, with quarterly sales of $63.723 billion for the period ending February 28, 2025, $62.151 billion for November 30, 2024, $79.697 billion for August 31, 2024, and $58.515 billion for May 31, 2024. However, the rate of revenue growth appears to be decelerating.
- Gross profit margin has fluctuated slightly but remains relatively stable, ranging from 12.52% to 12.94% over the last four quarters. For the quarter ending February 28, 2025, the gross profit margin was 12.52%.
- Net income has also been consistent, with $1.788 billion for the period ending February 28, 2025, $1.798 billion for November 30, 2024, $2.354 billion for August 31, 2024, and $1.681 billion for May 31, 2024.
- Costco's net profit margin is significantly higher than the industry average, with a net profit margin of 2.81% for the quarter ending February 28, 2025, compared to an industry average of -6.59%.
- Return on Assets (ROA) for the quarter ending February 28, 2025, is 10.92%, Return on Equity (ROE) is 32.89%, and Return on Invested Capital (ROIC) is 24.30%. These figures are significantly higher than the industry averages of 0.03%, -22.49%, and -1.16%, respectively.
-
Operational Efficiency:
- Total current assets were $36.897 billion as of February 28, 2025, compared to $33.288 billion as of May 31, 2024, indicating an increase in short-term assets. Total current liabilities were $36.999 billion as of February 28, 2025, compared to $35.361 billion as of May 31, 2024, showing a rise in short-term obligations.
- Working capital is negative, with a figure of -$102 million as of February 28, 2025, indicating potential liquidity challenges.
- Net operating cash flow was $2.748 billion for the quarter ending February 28, 2025. Net investing cash flow was -$1.022 billion, and net financing cash flow was -$241 million.
- Free cash flow to equity was $1.611 billion for the quarter ending February 28, 2025, indicating strong cash generation.
- Capital expenditure was $1.137 billion for the quarter ending February 28, 2025. Depreciation, depletion, and amortization were $552 million for the same period.
- The company paid cash dividends, with $515 million paid in each of the quarters ending November 30, 2024, and August 31, 2024.
- The current ratio is 1.00 as of February 28, 2025, which is lower than the industry average of 1.59, indicating a potentially tight liquidity position. The quick ratio is 0.49, also lower than the industry average of 0.84.
- The total debt to total equity ratio is 31.81% as of February 28, 2025, which is significantly lower than the industry average of 408.42%, indicating a strong solvency position. Debt/EBITDA is 0.48, also lower than the industry average of 10.29.
-
Growth Opportunities:
- Costco plans to open 28 new warehouses in fiscal year 2025, including three relocations, resulting in 25 net new buildings. Several openings are scheduled for the immediate future, including locations in Brentwood and Highlands, California, and Sharon, Massachusetts.
- The company is extending gas station hours in North America to provide greater convenience for members.
- Costco sees significant growth potential in its international markets, both through new warehouse openings and increased penetration of executive memberships.
- The company's investments in e-commerce and digital initiatives, including personalization and targeted promotions, are driving sales growth and enhancing the member experience.
- Costco is continuously innovating with its Kirkland Signature brand, including improvements to existing products and the introduction of new offerings.
-
Recent Developments and Market Sentiment:
- The earnings call on March 6, 2025, highlighted Costco's focus on value and quality, strategic investments in employees, international growth opportunities, and e-commerce initiatives.
- Analysts focused on consumer spending and discretionary purchases, margin trends, the impact of weather, tariff strategy, international sales slowdown, and general merchandise performance.
- Management expressed confidence in delivering strong operating results despite the uncertain macro environment, emphasizing a focus on quality, value, and newness for members.
- The company is monitoring the potential impact of tariffs and aims to minimize related cost increases for members.
- A new employee agreement has taken effect in the US and Canada, reflecting a commitment to industry-leading pay and benefits.
-
Risks and Threats:
- High dependence on U.S. and Canadian operations, which account for a large majority of sales and profits.
- Challenges with expanding into new markets and integrating acquisitions.
- Potential declines in membership growth, loyalty, and brand recognition.
- Disruptions to merchandise distribution, processing, and logistics operations.
- Cybersecurity threats and data privacy/protection issues.
- Exposure to macroeconomic conditions, inflation, and changes in competition.
- Involvement in various labor-related lawsuits and civil investigative demands related to prescription drug claims and pesticide regulations.
-
Valuation Analysis:
- Enterprise Value to EBITDA is 35.90 and Enterprise Value to Sales is 1.64 as of the most recent quarter.
- Compared to industry averages, Costco's valuation metrics suggest it may be relatively overvalued, but this is balanced by its strong financial performance and growth prospects.
- Potential catalysts include successful new warehouse openings, continued growth in membership fee income, and effective management of tariff impacts.
-
Price Performance:
- Costco's stock price has shown an upward trend from March 24, 2025, to May 20, 2025, increasing from $924.83 to $1036.82.
- Costco has generally outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years. Over the last three years, COST has returned 151.71% compared to XLY's 56.86%. However, in the past month, COST has underperformed XLY, with returns of 8.39% and 19.72% respectively.
- Compared to peers, Costco has shown strong performance over the past three years, with a 3-year return of 151.71%. This is significantly higher than Target's (TGT) -30.0% and slightly higher than Walmart's (WMT) 149.15%.
-
Future Outlook:
- Management projects 28 new warehouse openings for fiscal year 2025.
- Headwinds from foreign exchange are expected to continue.
- The impact of potential tariffs is uncertain, but the company aims to minimize cost increases for members.
- Capital expenditure for the full year is estimated at approximately $5 billion.
- Analysts expect Costco to continue to grow its revenue and earnings, but at a slower pace than in the past.
-
Summary:
- Costco is a strong company with a solid membership-based business model and a track record of consistent growth.
- Strengths include its strong brand reputation, operational efficiency, and high customer loyalty. Weaknesses include declining gross margins and tight liquidity. Opportunities include international expansion and e-commerce growth. Threats include increased competition, rising costs, and regulatory risks.
- Costco's financial health is generally strong, with high ROA, ROE, and ROIC compared to industry averages. However, the company needs to improve its working capital management and address the declining gross margin.
- Critical factors for future performance include successful new warehouse openings, effective management of tariff impacts, and continued growth in membership fee income.
- Areas requiring further monitoring include the impact of rising costs on profitability, the success of international expansion efforts, and the management of cybersecurity threats.
- Overall, Costco presents a favorable investment profile due to its strong financial performance, growth potential, and solid business model. However, investors should be aware of the potential risks and challenges facing the company.
Price history
Add to research
Fundamentals
Add to research
Insights
- Costco's revenue growth is decelerating, but the company is still generating strong sales and membership fee income.
- The company's profitability is under pressure, as gross margin is decreasing and operating expenses are increasing.
- Costco's liquidity position is slightly tight, but its solvency position is strong.
- The company's strategic initiatives, such as new product launches and market expansion, are expected to help drive future growth.
- Key risks include increased competition, rising costs, and cybersecurity threats.
Analysis
- Revenue
- Revenue growth is decelerating, as indicated by the decreasing YoY growth rates and the lower 3-year CAGR compared to the 5-year CAGR.
- Despite the deceleration, revenue continues to grow, driven by strong sales and membership fee income.
- The company's focus on providing value and quality to its members, as well as its strategic initiatives such as new product launches and market expansion, are expected to support future revenue growth.
- Profitability
- Profitability is under pressure, as gross margin is decreasing and operating expenses are increasing.
- The company's net profit margin is significantly higher than the industry average, but it is decreasing over time.
- Costco may need to take steps to improve its gross margin, such as increasing prices, reducing costs, or changing its product mix.
- Liquidity
- Costco's liquidity position is slightly tight, as indicated by the low current ratio and quick ratio compared to the industry average.
- However, the company's strong cash flow generation and manageable debt levels provide some cushion.
- The company may need to improve its working capital management to enhance its liquidity position.
- Solvency
- Costco's solvency position is strong, as indicated by the low total debt to total equity ratio and debt/EBITDA compared to the industry average.
- The company has a manageable level of long-term debt and a growing equity base.
- Costco's strong solvency provides financial flexibility for future investments and strategic initiatives.
- Operational Efficiency
- Costco is efficiently utilizing its assets to generate revenue, as indicated by the increasing accounts receivable and inventory levels.
- The company is effectively controlling its operating costs, as selling, general, and administrative expenses are growing at a slower rate than revenue.
- Costco's operational efficiency is a key strength that supports its overall financial performance.
- Cash Flow Analysis - Operating cash flow is strong, driven by net income and depreciation, but changes in working capital can have a significant impact. - Capital expenditures are increasing, reflecting investments in new warehouses and infrastructure. - The company has a strong track record of dividend growth and share repurchases, reflecting its commitment to returning value to shareholders.
- Risk Factors
- Increased competition from other retailers, changing consumer preferences, and macroeconomic factors could negatively impact revenue growth and profitability.
- Rising commodity prices, supply chain disruptions, and labor costs could put pressure on gross margin and operating expenses.
- Cybersecurity threats and data privacy/protection issues could pose financial and reputational risks.
- Future Outlook
- Costco is expected to continue to grow its revenue and earnings, but at a slower pace than in the past.
- The company's profitability is expected to remain under pressure, as gross margin is likely to continue to decrease.
- Costco may need to take steps to improve its gross margin and enhance its liquidity position.
- The company's strategic initiatives, such as new product launches and market expansion, are expected to help drive future growth.
- Profitability
Financial statements
Add to research
Loading...
Public filings
Add to research
- Costco's membership-based warehouse model continues to drive strong sales and profitability, though it faces increasing competition from both traditional and e-commerce retailers
- The company's international expansion efforts, particularly in newer markets, carry risks around integration, profitability, and membership growth
- Rising costs, including labor, healthcare, and commodities, are pressuring margins and requiring careful management of pricing and operations
- Costco's large and growing digital presence exposes it to heightened cybersecurity threats and data privacy/regulatory risks that require ongoing investment and vigilance
- Legal and regulatory challenges, including labor lawsuits and government investigations, pose financial and reputational risks that the company must navigate
- Overall, Costco appears to be executing well on its core business strategy, but faces a range of operational, financial, and external risks that could impact its future performance
Core Business and Operations:
- Costco operates membership warehouses and e-commerce sites based on the concept of offering members low prices on a limited selection of nationally-branded and private-label products across a wide range of merchandise categories
- Key product categories include foods and sundries, non-foods, fresh foods, as well as warehouse ancillary businesses like gasoline, pharmacy, optical, food court, and others
- Costco has 890 warehouses worldwide, with the majority (614) located in the U.S. and the remainder in Canada, Mexico, Japan, UK, Korea, Australia, and other international markets
- Costco's membership format is a key part of its business model, with paid memberships (including Executive memberships) providing recurring revenue and reinforcing customer loyalty
Industry and Market Trends:
- Costco operates in a highly competitive retail industry, facing competition from global, national, and regional wholesalers, retailers, supermarkets, online retailers, and other warehouse clubs
- Industry trends include the continued growth of e-commerce, changing consumer preferences, rising costs (e.g. labor, commodities, energy), and the impact of economic conditions and government policies (e.g. tariffs) on consumer spending
Recent Events:
- Opened 30 new warehouses in fiscal 2024, including one relocation
- Increased membership fees in the U.S. and Canada, effective September 2024
- Paid a special cash dividend of $15 per share in January 2024
Risk Factors:
- High dependence on U.S. and Canadian operations, which account for a large majority of sales and profits
- Challenges with expanding into new markets and integrating acquisitions
- Potential declines in membership growth, loyalty, and brand recognition
- Disruptions to merchandise distribution, processing, and logistics operations
- Cybersecurity threats and data privacy/protection issues
- Exposure to macroeconomic conditions, inflation, and changes in competition
Legal Matters:
- Involved in various labor-related lawsuits, including class actions alleging wage and hour violations
- Named in lawsuits related to opioid abuse and alleged sale of products containing PFAS chemicals
- Received civil investigative demands related to prescription drug claims and pesticide regulations
Management's Discussion and Analysis:
- Net sales growth driven by increases in comparable sales and new warehouse openings
- Gross margin improvements offset by higher SG&A expenses, particularly labor and wage costs
- Strong cash flow from operations, funding capital expenditures and shareholder returns (dividends, share repurchases)
- Liquidity remains robust with ample cash, short-term investments, and available credit facilities
Earnings calls
Add to research
Earnings Report 2025Q2 (2025-03-06)
Key takeaways
- Focus on Value and Quality: Costco's continued emphasis on providing value and quality to its members is a key differentiator and driver of customer loyalty, particularly in uncertain economic times.
- Strategic Investments in Employees: The company's commitment to industry-leading wages and benefits, while creating short-term cost pressures, is expected to drive long-term productivity and employee retention.
- International Growth Opportunities: Despite some currency headwinds, Costco sees significant growth potential in its international markets, both through new warehouse openings and increased penetration of executive memberships.
- E-commerce and Digital Initiatives: The company's investments in e-commerce and digital initiatives, including personalization and targeted promotions, are driving sales growth and enhancing the member experience.
- Managing Tariff Risks: While the impact of potential tariffs remains uncertain, Costco's global sourcing capabilities and strong supplier relationships position it to mitigate cost increases and maintain competitive pricing.
Focus of management’s prepared remarks
- New Warehouse Openings: Costco plans to open 28 new warehouses in fiscal year 2025, including three relocations, resulting in 25 net new buildings. Several openings are scheduled for the immediate future, including locations in Brentwood and Highlands, California, and Sharon, Massachusetts.
- Extended Gas Station Hours: Gas station hours in North America are being extended to provide greater convenience for members. Stations are generally staying open an hour later, with some opening earlier as well.
- Employee Agreement: A new employee agreement has taken effect in the US and Canada, reflecting a commitment to industry-leading pay and benefits. Highlights include immediate and future top-of-scale wage increases, a higher minimum wage, and enhanced vacation benefits.
- International Performance: Canada and other international businesses delivered outstanding results on a constant currency basis, although reported results were negatively impacted by foreign exchange fluctuations.
- Tariff Impact: The company is monitoring the potential impact of tariffs and aims to minimize related cost increases for members. About a third of US sales are imported, with less than half of those coming from China, Mexico, and Canada.
- Member Value: Costco is focused on providing high-quality items at great prices, leveraging global buying power, strong supplier relationships, and innovation to meet this challenge.
- Digital Initiatives: The new warehouse tool in the Costco app, which allows members to view local warehouse item availability and prices, has seen significant usage. The company is also working on personalization efforts to improve the member experience.
- Kirkland Signature Innovation: Costco is continuously innovating with its Kirkland Signature brand, including improvements to existing products and the introduction of new offerings.
Focus of the analyst Q&A
- Consumer Spending and Discretionary Purchases:
- Consumer willingness to purchase discretionary versus non-discretionary items.
- Potential slowing of consumer spending due to tariffs or other economic factors.
- Margin Trends:
- Sustainability of recent margin expansion in light of inflationary pressures and potential tariffs.
- Factors influencing core on core margin performance.
- Impact of Weather:
- The extent to which weather impacted sales in February, particularly in weather-sensitive businesses.
- Tariff Strategy:
- How Costco plans to manage the impact of tariffs on food and other products, including the potential for passing costs on to consumers.
- Whether the company will shift sourcing to less tariff-impacted countries.
- International Sales Slowdown:
- Reasons for the sequential slowdown in international sales in February.
- Long-term growth prospects for international markets.
- General Merchandise and Electronics Performance:
- Trends in general merchandise and electronics categories.
- Opportunities for international product innovation.
- Multi-Vendor Mailers and Digital Promotions:
- Effectiveness of targeted multi-vendor mailers and digital promotions.
- Impact on traffic and sales.
- Kirkland Signature Strategy:
- Opportunities for expanding the Kirkland Signature brand into new categories, particularly non-foods.
- Success rate of new Kirkland Signature item introductions.
- Wage Increases and Productivity:
- Impact of recent wage increases on SG&A.
- Opportunities for productivity improvements to offset wage pressures.
- Alternative Media Strategy:
- Plans for building out alternative media capabilities and generating revenue from advertising.
- Store Throughput:
- Initiatives to improve throughput in stores, including scanning at the front door and checkout processes.
- Potential for extending store hours.
- Gas Volume Trends:
- Reasons for the decline in gas volumes in February.
- Membership Fees:
- Plans for membership fee increases in international countries.
- Updates on executive membership programs in international markets.
- Average Ticket Trends:
- Drivers of average ticket trends, including mix, number of items, and inflation.
- Price Gaps:
- How Costco views its price gaps versus competitors, particularly with inflation creeping back in.
Summary
-
Financial Performance
Costco reported net income of $1.788 billion, or $4.02 per diluted share, up from $1.743 billion, or $3.92 per diluted share, in the prior year. Excluding a tax benefit from the previous year, net income and EPS grew by 8.4%. Operating income increased by 12.3%, offset by a $70 million headwind in interest and other, and a $57 million negative impact from foreign exchange. Net sales increased by 9.1% to $62.53 billion. US comparable sales were up 8.3% (8.6% excluding gas deflation). Membership fee income increased by 7.4% to $1.193 billion (9.4% excluding FX).
-
Revenue Drivers
The primary revenue drivers were strong comparable sales growth, particularly in the US, and increased membership fee income. E-commerce sales grew significantly, up 20.9% (22.2% adjusted for FX). Non-food categories led core merchandising sales, with mid-teens comparable sales growth. Within ancillary businesses, pharmacy and food court departments performed strongly. Kirkland Signature products continue to outpace overall business growth. Traffic increased 5.7% worldwide and 5.6% in the US.
-
Profit Margins and Cost Management
Gross margin increased by 5 basis points to 10.85%. Core margins on their own sales were lower by 8 basis points due to supply chain investments and mix changes in non-food categories. SG&A was lower by 8 basis points, driven by higher labor productivity and cost discipline. A new employee agreement is expected to create a 13 basis point headwind to SG&A, partially offset by lapping a prior year increase.
-
Guidance and Outlook
Management projects 28 new warehouse openings for fiscal year 2025. Headwinds from foreign exchange are expected to continue. The impact of potential tariffs is uncertain, but the company aims to minimize cost increases for members. Capital expenditure for the full year is estimated at approximately $5 billion.
-
Strategic Initiatives
Costco is extending gas station hours in North America. A new employee agreement with increased wages and benefits has been implemented. The company is expanding local sourcing of private label items and innovating with Kirkland Signature products. Improvements have been made to the co-branded credit card program. The company is also developing its retail media capabilities.
-
Management Commentary
Management expressed confidence in delivering strong operating results despite the uncertain macro environment. They emphasized a focus on quality, value, and newness for members. They highlighted the agility of their teams in managing potential tariff impacts. Management believes that Costco is well-positioned to navigate uncertain times by leveraging global buying power, strong supplier relationships, and innovation.
-
Industry and Market Conditions
Overall inflation in the quarter was low single digits, with variability across departments. The supply chain is relatively stable, but shipping delivery dates are still less predictable than pre-COVID. Management noted a potential shift towards more spending on food at home versus food away from home.
Comparative analysis
Add to research
Benchmarks (as of 2025-05-20)
Consumer Discretionary Select Sector SPDR Fund (XLY)
- Performance Comparison:
- Costco Wholesale Corp. (COST) has generally outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years. Over the last three years, COST has returned 151.71% compared to XLY's 56.86%. However, in the past month, COST has underperformed XLY, with returns of 8.39% and 19.72% respectively. This recent underperformance is an exception to the longer-term trend of COST outperforming XLY.
- Risk and Return Analysis:
- Costco Wholesale Corp. (COST) has provided higher annualized returns compared to the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past one, two, and three years. The annualized return for COST over the past three years is 36.03%, compared to 16.19% for XLY.
- Costco Wholesale Corp. (COST) has generally exhibited lower annualized volatility compared to the Consumer Discretionary Select Sector SPDR Fund (XLY). For example, in Q3 2024, COST's volatility ranged from 14.39% to 25.17%, while XLY's volatility ranged from 11.43% to 29%.
- The maximum drawdown for Costco Wholesale Corp. (COST) was -29.25% on 2022-05-23, while the maximum drawdown for Consumer Discretionary Select Sector SPDR Fund (XLY) was -39.67% on 2022-12-28. This indicates that COST has a less risky profile, as it experienced a smaller peak-to-trough decline compared to XLY.
- Risk-Adjusted Performance:
- Costco Wholesale Corp. (COST) has generally offered a better risk-adjusted return compared to the Consumer Discretionary Select Sector SPDR Fund (XLY), as indicated by its higher Sharpe Ratio. In Q2 2025, COST's Sharpe Ratio ranged from 1.25 to 1.71, while XLY's Sharpe Ratio ranged from 0.04 to 0.96.
- The Beta value of Costco Wholesale Corp. (COST) has generally been below 1, indicating that it is less sensitive to market movements compared to the Consumer Discretionary Select Sector SPDR Fund (XLY), which has a Beta consistently above 1. This suggests that COST is a relatively less risky investment.
- Overall Assessment:
- Costco Wholesale Corp. (COST) has demonstrated strong relative performance, lower risk, and better risk-adjusted returns compared to the Consumer Discretionary Select Sector SPDR Fund (XLY). The trends indicate that COST has been more stable and resilient, particularly in recent periods. While COST has shown a recent underperformance over the last month, its longer-term performance and risk metrics suggest it remains a favorable investment compared to the broader consumer discretionary sector.
Peers Price History(as of 2025-05-20)
- Performance Comparison:
- Costco (COST) has shown strong performance over the past three years, with a 3-year return of 151.71%. This is significantly higher than Target's (TGT) -30.0% and slightly higher than Walmart's (WMT) 149.15%. In the shorter term, Costco's YTD return of 14.23% also outperforms Target's -27.04% and Walmart's 9.23%. However, Walmart has outperformed Costco over the past year, with returns of 51.65% compared to Costco's 30.12%.
- Risk and Return Analysis:
- Costco's annualized returns for the past three years are 36.03%, which is better than Target's -11.21% but similar to Walmart's 35.57%. Costco's annualized volatility has generally been lower than Target's but comparable to Walmart's. For example, in Q2 2022, Costco's volatility ranged from 47.88% to 55.53%, while Target's ranged from 77.61% to 83.85% and Walmart's ranged from 42.79% to 45.22%. Costco's maximum drawdown of -29.25% is less severe than Target's -63.52% but slightly more than Walmart's -25.74%, indicating a moderate risk profile.
- Risk-Adjusted Performance:
- Costco's Sharpe Ratio has generally been positive, indicating reasonable risk-adjusted returns. However, Walmart consistently shows higher Sharpe ratios, suggesting better risk-adjusted performance. Target often has negative Sharpe ratios, indicating poor risk-adjusted performance. As of Q2 2025, Costco's Sharpe ratio ranges from 1.25 to 1.71, Target's Sharpe ratio ranges from -1.13 to -0.86, and Walmart's Sharpe ratio ranges from 1.93 to 2.22. Costco's beta values are generally below 1, indicating lower sensitivity to market movements compared to Target, which has beta values around 1.
- Overall Assessment:
- Costco has demonstrated strong historical performance and reasonable risk-adjusted returns, making it a potentially attractive investment option. However, Walmart appears to offer better risk-adjusted performance based on higher Sharpe ratios and lower volatility. Target has struggled with both performance and risk-adjusted returns, indicating a less favorable investment profile compared to Costco and Walmart.
Peers Fundamentals(as of 2025-02-28)
-
Market Position and Size:
- Costco's market capitalization of $460,019.41 million is significantly larger than Target's $44,581.8 million, but smaller than Walmart's $782,487.04 million. This places Costco as a major player in the retail sector, but not the largest.
- In terms of revenue, Costco's $264,086 million is greater than Target's $105,881 million, but less than Walmart's $685,086 million.
- Costco's EBITDA of $12,073 million is greater than Target's $8,860 million, but less than Walmart's $42,856 million.
- Costco holds a strong market position, reflected in its high market capitalization relative to its revenue and earnings, indicating a premium valuation. While smaller than Walmart, it commands a significant portion of the retail market.
-
Profitability and Efficiency:
- Costco's Gross Profit Margin of 12.67% is significantly lower than Target (25.7%), Walmart (24.88%), and the industry average (31.87%). This indicates that Costco operates on a lower markup strategy, relying on high sales volume.
- Costco's EBITDA Margin of 4.57% is lower than Target (8.37%) and Walmart (6.26%), and also below the industry average (5.18%).
- Costco's Net Profit Margin of 2.89% is slightly higher than Walmart (2.75%) but lower than Target (3.95%). It is significantly higher than the industry average (-6.27%).
- Costco's Return on Average Assets (10.92%), Return on Average Total Equity (32.89%), Return on Average Total Capital (30.52%), and Return On Average Invested Capital (24.3%) are all higher than Target, Walmart, and the industry average. This demonstrates superior efficiency in generating returns on its investments.
- Despite lower margins, Costco's substantial revenue translates into significant gross profit, EBITDA, and net income, reflecting its business model focused on high sales volume with lower markups.
-
Financial Health and Stability:
- Costco's Current Ratio is 1.0, higher than Target (0.94) and Walmart (0.78), but lower than the industry average (1.6).
- Costco's Quick Ratio is 0.49, higher than Target (0.25) and Walmart (0.22), but lower than the industry average (0.84).
- Costco's Total Debt to Total Equity Ratio is 31.81, significantly lower than Target (127.36), Walmart (80.2), and the industry average (416.38). This indicates a more conservative capital structure.
- Costco's Debt / EBITDA is 0.48, lower than Target (1.75) and Walmart (1.23), and significantly lower than the industry average (10.28).
- Costco exhibits a strong liquidity position relative to its debt, with a low Debt/EBITDA ratio and a healthy Cash Flow / Total Debt ratio (135.41%). Its debt levels are conservative compared to its equity and earnings.
-
Valuation and Market Perception:
- Costco's Enterprise Value To Sales is 1.79, higher than Walmart (1.24) and the industry average (1.37).
- Costco's Enterprise Value To EBITDA is 38.89, significantly higher than Walmart (19.45) and the industry average (27.97).
- Costco's Price To Earnings is 60.53, higher than Target (10.78) and Walmart (41.91), but lower than the industry average (176.14).
- Costco's Price to Book Ratio is 17.99, significantly higher than Target (3.05), Walmart (8.62), and the industry average (3.96).
- Costco's Price To Sales Ratio is 1.75, significantly higher than Target (0.42), Walmart (1.15), and the industry average (0.98).
- Costco's valuation metrics suggest that it is trading at a premium compared to its peers and industry averages, reflecting investor confidence in its growth prospects and business model.
-
Cash Flow and Capital Management:
- Costco's Net Operating Cash Flow is $11,965 million, higher than Target ($6,541 million) but lower than Walmart ($37,605 million).
- Costco's Total Capital Expenditure is $5,040 million, higher than Target ($3,007 million) but lower than Walmart ($24,093 million).
- Costco's Free Cash Flow is $6,925 million, higher than Target ($3,534 million) but lower than Walmart ($13,512 million).
- Costco's cash flow generation is strong, with a healthy free cash flow margin of 0.03, on par with Target and slightly higher than Walmart.
-
Growth and Future Prospect:
- Costco shows consistently higher growth in Sales/Revenue, EBITDA, and EBIT Margin compared to the peer group average. Conversely, it exhibits lower growth in Free Cash Flow and Free Cash Flow Margin.
- Costco's 3-year CAGR is lower than its 5-year CAGR for Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, and Free Cash Flow, indicating a deceleration in growth over the most recent three years.
- Costco's competitive position is strong, with superior growth in key areas like revenue and earnings. However, its underperformance in free cash flow growth is a potential concern.
-
Potential for Investment:
- Costco presents an attractive investment opportunity due to its strong financial health, efficient operations, and growth potential.
- Its premium valuation reflects investor confidence in its business model and market leadership.
- While its lower gross and EBITDA margins may raise concerns, its high returns on equity and assets, conservative capital structure, and strong earnings suggest that it is a well-managed and profitable company.
-
Key Risks and Considerations:
- Costco's lower gross and EBITDA margins compared to peers and the industry average could be a risk if it faces increased competition or rising operating costs.
- Its underperformance in free cash flow growth is a potential concern, as it may limit its ability to invest in future growth opportunities or return capital to shareholders.
- Costco's premium valuation may make it vulnerable to a correction if its growth prospects do not meet investor expectations.
-
Overall Assessment:
- Costco exhibits strong financial health, characterized by high returns on equity and assets, a conservative capital structure, and strong earnings.
- While its gross and EBITDA margins are lower than peers, its efficient operations and high sales volume translate into robust profitability and cash flow.
- Costco's premium valuation reflects investor confidence in its business model and growth prospects.
- Overall, Costco is a well-managed and profitable company with a strong competitive position in the retail industry.
Comparison metrics
Add to research