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August, 2021

Are we Still Bullish on Costco (COST)?

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Are we Still Bullish on Costco (COST)?

Costco’s store model creates a warehouse-based treasure hunt, at least according to consumers on social media.
 
And based on Consumer Happiness levels, the Costco store (and increasingly digital) experience is boosting the company above its peers.
Costco leads peers in consumer happiness at 72% positive, followed closely by Amazon and Target, with Walmart trailing 20 points behind.
 
This is a tremendous forward-looking indicator for the company on a long-term basis.
 
Another key indicator to consider is membership renewals.
 
Last quarter, Costco reported a renewal rate of 91%. LikeFolio data suggests member retention rates remain high. After a surge of pandemic-related renewals last spring, these mentions are stable (exactly flat YoY on a 365-day Moving average).
These positive tailwinds have created extremely high expectations for Costco. 
 
Some analysts are anticipating increased stockpiling activity driven by Delta variant fears. But LikeFolio data doesn’t show significant traction.
Stockpiling mentions are +13% higher vs. 2019 but significantly lower YoY. Some behavior stickiness, but nowhere near panic levels in 2020.
 
In addition, Back-to-School Shopping mentions have not normalized to pre-pandemic levels. While these mentions are much higher vs. 2020, they remain ~30% lower vs. 2019. 
 
Long-term, we love this company. We issued a Bullish Costco alert in February 2021 when shares were trading below $375.
 
Now at all-time highs (above $440), we wouldn’t be surprised to see a near-term correction. 

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