Investing in the stock market is best accomplished with a long-term mindset, which can protect your holdings from temporary setbacks. One category of stocks that has proven to deliver solid gains over extended periods of time is growth stocks. While big brand names like Apple and Amazon are often the focus of attention when it comes to growth stocks, looking at relatively unknown options can be a good way to diversify your portfolio. For example, discount retailer Costco Wholesale (NASDAQ: COST), known for its membership-only warehouse stores and affordability, has performed exceptionally well for investors.
The company’s annual revenue has grown more than 60% over the last five years, and its operating income has increased by 74% despite the challenges posed by the COVID-19 pandemic and economic difficulties. Costco’s unique business model has gained wide acceptance around the world, and it still has lots of room for future growth.
Here’s why this under-the-radar growth stock is worth buying in June:
A global business in demand
Costco has proved time and again that its business model works, and the company is now operating in 14 countries. Its big-box, warehouse-style stores have transcended cultural and geographic boundaries and have expanded to countries like China, Sweden, and New Zealand, with plans to open 15 more stores in France by 2025. Costco’s popularity is evidenced by an international membership renewal rate of 88% and 91% in the U.S. and Canada, respectively.
Costco opened its first store in France in 2017. As a culture where small businesses play a significant role in commerce, France has historically been apprehensive of foreign brands, evidenced by the massive protests that erupted with the opening of Walt Disney‘s Disneyland Paris in 1992. Costco’s entry into the French market, therefore, was cautious.
However, Costco encountered a much warmer reception in France than Disney. In 2021, it amassed over 160,000 French memberships, leading to the opening of a second location in 2022, with plans for additional store openings in the country. The company’s success in this region suggests that it has massive potential for expansion globally.
Between 2017 and 2021, Costco’s international revenue rose 67% to $27 billion. However, the wholesale company has only scratched the surface in many of the countries where it operates, and tremendous growth prospects remain.
A history of steady growth
Over the last five and ten years, Costco shares have soared by 158% and 367%, respectively. The company’s consistent growth has propelled it to outperform bigger competitors, as seen in the chart below:
Data by YCharts
Costco’s track record of consistent gains has earned it the loyalty of investors who believe in its long-term prospects. For example, the company reported revenue of $55 billion in Q2 2023, missing analysts’ expectations by $340 million. Despite this, the company’s stock price rose by 4% after its quarterly earnings release on March 2, with investors betting on its long-term growth.
Costco has delivered 18 consecutive years of dividend growth, demonstrating that it is home to a stable and financially expanding business. Although its dividend yield is modest at 0.8%, the company has released special dividends in the past, paying out $10 per share in December 2020. Crucially, the company’s quarterly dividend has grown by 229% in the last ten years, reaching $1.02 this year.
Costco has a globally accepted business model with tremendous growth prospects, and its history of reliable gains has earned it a reputation as an under-the-radar growth stock worthy of consideration this month.
10 stocks we like better than Costco Wholesale
When the analysts at our newsletter Motley Fool Stock Advisor have a stock tip, it pays to listen. After all, the publication has tripled the market over the last decade.*
Recently, our analysts revealed what they consider to be the best ten stocks for investors to buy right now, and Costco Wholesale did not make the list! Yes, that’s right – they believe these ten stocks are even smarter investments.
*The returns of Stock Advisor as of May 30, 2023
John Mackey, the former CEO of Whole Foods Market, now an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no positions in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Apple, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
