Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) has experienced an impressive climb so far in 2024. This gain can be attributed to strong fundamentals, expanding membership revenues and consistent operational performance, positioning Costco as a staple in investor portfolios. However, with such significant appreciation, some investors may wonder whether it's time to lock in gains or stay bullish on the stock’s long-term potential.

As a consumer-defensive stock, Costco has weathered market volatility admirably. Shares of this Issaquah, WA company have rallied about 35% year to date compared with the industry's 18.5% rise.

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Decoding Potential Tailwinds Behind Costco’s Rally

Costco’s resilient business model, centered around a membership-based structure, continues to be a major growth driver. The company’s high membership renewal rates, coupled with its efficient supply-chain management and bulk purchasing power, ensure competitive pricing and customer loyalty. 

Members pay an annual fee to access Costco's warehouses, where they can purchase goods at significant discounts. This model not only ensures a steady inflow of revenues but also creates a sense of exclusivity and value among its members. The company's recent increase in membership fees could also play a role in future performance, potentially boosting revenues but also testing customer loyalty.

Costco's ability to offer products at lower prices than many of its competitors is a major draw for its customer base. This pricing strategy attracts a broad demographic, from budget-conscious families to small businesses, enhancing Costco's appeal across various market segments. COST reported an impressive increase in comparable sales, achieving 6.7% growth during the five weeks ended Oct. 6, 2024.

Costco continuously adapts to market trends and consumer preferences. The company regularly updates its product offerings to include a mix of everyday essentials and unique, high-demand items. Through market analysis and tailored offerings, Costco has expanded its presence domestically and internationally. 

The company has been steadily opening new club locations while operating e-commerce sites across various countries, including the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia. The company registered e-commerce comparable sales growth of 22.9% in September.

How Do Consensus Estimates Measure Up for COST?

Wall Street analysts have expressed confidence in Costco stock by raising their earnings per share estimates. Over the past 30 days, analysts have increased their estimates for the current and next fiscal year by 0.1% to $17.75 and 0.3% to $19.35 per share, respectively. The consensus estimates suggest year-over-year increases of 10.2% and 9%, respectively.

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Unlocking Costco’s Valuation

Costco is currently trading at a premium compared to industry peers. However, this elevated valuation is not without merit. With a forward 12-month price-to-earnings ratio of 49.47, surpassing the median level of 45.50 observed in the past year, Costco demonstrates its appeal to investors seeking growth opportunities. Moreover, when compared to the industry's forward 12-month P/E ratio of 29.18 and the S&P 500's ratio of 22.12, Costco’s higher valuation reflects its position as a standout performer in the market.

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Should You Consider Taking Profits on Costco Stock?

While Costco's recent performance is strong, there are factors to consider. The current valuation of Costco stock is relatively high, trading at a premium compared to its peers. This reflects the market's confidence in Costco's business model but also raises the risk of a price pullback if the broader market turns volatile. Cautious investors might consider partial profit-taking to lock in gains while retaining exposure to Costco’s promising future.

Verdict: Stay Bullish on Costco?

Costco is a compelling investment due to its solid membership model, consistent revenue growth and strategic expansion plans. The company’s strong financial position and high customer retention rates, combined with successful e-commerce initiatives, ensure its resilience in the competitive retail market. Despite a premium valuation, investor confidence remains high, making Costco a valuable addition to any portfolio poised for solid long-term returns. Costco currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Zacks Consensus Estimate for Target’s current financial-year earnings implies growth of around 6.6% from the year-ago reported numbers.

The Kroger Co. (KR Quick QuoteKR - Free Report) , which operates as a food and drug retailer in the United States, currently carries a Zacks Rank #2. KR has a trailing four-quarter earnings surprise of nearly 8.2%, on average. 

The Zacks Consensus Estimate for Kroger’s current quarter’s sales and earnings indicates growth of 1% and 3.2%, respectively, from the year-ago reported numbers.

Flowers Foods, Inc. (FLO Quick QuoteFLO - Free Report) , one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO delivered an earnings surprise of 1.9% in the last reported quarter.

The Zacks Consensus Estimate for Flowers Foods’ current financial year’s sales and earnings implies growth of 0.9% and 5%, respectively, from the year-ago reported numbers.