When Costco Wholesale Corporation (NASDAQ:COST) released its most recent earnings update (13 May 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Costco Wholesale performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see COST has performed.
Did COST’s recent earnings growth beat the long-term trend and the industry?
COST’s trailing twelve-month earnings (from 13 May 2018) of US$3.01b has jumped 18.2% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 9.0%, indicating the rate at which COST is growing has accelerated. What’s the driver of this growth? Let’s see whether it is only because of an industry uplift, or if Costco Wholesale has seen some company-specific growth.
Over the last few years, Costco Wholesale grew its bottom line faster than revenue by successfully controlling its costs. This has led to a margin expansion and profitability over time. Inspecting growth from a sector-level, the US consumer retailing industry has been growing its average earnings by double-digit 11.5% in the previous year, and a more muted 5.3% over the past half a decade. This growth is a median of profitable companies of 25 Consumer Retailing companies in US including Walmart, Distribuidora Internacional de Alimentación and Distribuidora Internacional de Alimentación. This means that whatever tailwind the industry is deriving benefit from, Costco Wholesale is able to amplify this to its advantage.
In terms of returns from investment, Costco Wholesale has invested its equity funds well leading to a 24.6% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 7.9% exceeds the US Consumer Retailing industry of 6.3%, indicating Costco Wholesale has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Costco Wholesale’s debt level, has increased over the past 3 years from 21.1% to 21.8%.
What does this mean?
Though Costco Wholesale’s past data is helpful, it is only one aspect of my investment thesis. While Costco Wholesale has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I suggest you continue to research Costco Wholesale to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for COST’s future growth? Take a look at our free research report of analyst consensus for COST’s outlook.
- Financial Health: Are COST’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 13 May 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.