Costco Continues to Soar in Retail: An Analysis of the Success Model

Costco has established itself as one of the long-term winners in the fiercely competitive retail sector. The company, which enjoys great popularity with Charlie Munger, the late partner of investment guru Warren Buffett, continues to experience steady growth—even in challenging times. This trend once again continued in 2024. With an impressive stock price increase of 50.8% and a current price of $1,000 per share, the question arises whether Costco shares are still a recommended investment. Despite this success, the price should not be underestimated: with a price-earnings ratio of 58, Costco's shares are found in regions usually reached only by high-growth technology companies. Interestingly, Costco's revenue grew by only 5% last year, while analysts predict growth of 7% per year for the next two years. Although this growth is solid, it does not seem to fully justify the company's high valuation. On the other hand, the company's profits increased by a remarkable 17% in fiscal year 2024, indicating excellent operational efficiency and an expansion of profit margins. Costco's unique business model, in which customers purchase an annual membership, is of central importance here. Recently, the fee for a standard membership was raised for the first time in seven years from $60 to $65. Nevertheless, this remains a bargain considering the heavily discounted product range. Membership fees, which contributed a substantial 52% to operating income in fiscal year 2024, allow the company to offer goods at minimal margins. Overall, it becomes clear that Costco's strategy of low margins and high membership fees continues to provide a strong foundation for future success stories. Even small improvements in margin could have significant impacts on profit, ensuring Costco’s role as the undisputed market leader.