3 Reasons to Buy Costco Stock Like There's No Tomorrow

Costco Wholesale 's (NASDAQ: COST) stock has risen 614% over the last decade, far and away outperforming rivals like Walmart and Target (which increased 170% and 155%, respectively). The company has attracted consumers worldwide to its warehouses, where it offers access to market-low prices for the cost of an annual membership.

In over 40 years of operation, Costco has built an almost cult-like following with its customers, boasting a 90% membership renewal rate globally. As a result, the company's stock has become one of the most reliable long-term investment options, rallying Wall Street with consistent earnings growth and expansions abroad.

Costco's share price hit an all-time high this month, reaching just under $843 per share. The company's stock has fallen slightly since yet remains a screaming buy after announcing its first membership fee hike in seven years and expansions outside brick-and-mortar retail.

So, here are three reasons to buy Costco stock like there's no tomorrow.

1. Costco is raising membership fees for the first time in seven years

This month, Costco announced its first membership fee hike in seven years, increasing the annual price by more than 8% in the U.S. and Canada. The price rise will take effect Sept. 1, with the basic membership rising by $5 to $65 and the executive tier increasing by $10 to $130 annually.

The change will likely lead to a significant earnings boost for the company, with Costco revealing it will "impact about 52 million paid memberships, a little over half of which are Executive."

The price hike is just the latest in a series of moves Costco has made to promote revenue growth. In April, the company began checking membership cards for access to its food court, where it offers members perks like its famous hot dog and a drink for $1.50. Then, in June, Costco announced it would soon require I.D. at the register, closing an exploited loophole that allowed membership sharing.

The retail industry has long been known for its low profit margins. Costco's memberships have become its bread and butter, allowing it to rely less on product sales. In the third quarter of 2024, Costco's operating income jumped 24% year over year to more than $2 billion.

This subscription-based model has set the company apart from many competitors and fueled its stock growth. As a result, it might be worth investing now before the recent price hike is reflected in its quarterly earnings.

2. Expanding outside of brick-and-mortar commerce

Costco has 878 locations worldwide and is expanding quickly, opening 17 new warehouses since last year. The company operates in 14 different countries, and with more than 80% of its stores in North America, Costco has plenty of regions ripe for expansion.

In addition to a growing number of locations abroad, Costco is diversifying its earnings by venturing outside brick-and-mortar retail. In its fiscal third quarter of 2024, ended May 12, revenue in the company's e-commerce segment climbed 21%, significantly outperforming its other divisions. The boost came alongside a 32% increase in app downloads and a 28% year-over-year rise in Costco Logistics deliveries.

According to Marketing Report, the global e-commerce market reached $19 trillion in spending in 2022 and is expected to more than double to $48 trillion by 2030. Considering Costco's growing user base and the brand loyalty achieved with consumers, the company could see major gains as the market develops.

Moreover, in another move to diversify revenue streams, Costco is building an ad network that will utilize membership data to offer targeted advertisements on and off its website. AVP of Retail Media Mark Williamson said on the development, "Not only will we help you reach a Costco member, we will help you reach the right members in the right context based on past behavior."

The move will see the country's third-largest retailer join the retail media space, an industry projected to reach $166 billion by 2025 (per eMarketer).

3. Worth its valuation

Data by YCharts

This chart shows that Costco's price/earnings-to-growth (PEG) ratio has fallen 58% over the last year, well below its 12-month average.

PEG is calculated by dividing a company's price-to-earnings ratio by its expected annual earnings-per-share growth. This metric is helpful because it considers a company's growth prospects, not just its past performance. As a result, the lower the PEG, the better the bargain.

The figures indicate Costco's stock remains a value compared to its potential and could be worth buying like there's no tomorrow.

Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy .