Costco Stock Price Forecast September 2021 – Time to Buy COST Stock?

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Costco (COST) stock is up 19% for the year which is largely in line with the S&P 500. What’s the forecast for COST stock and should you buy it in September?

Costco stock has delivered stellar returns over the long term. The stock has almost tripled over the last five years, outperforming some of its retail peers by a wide margin.

Costco stock recent developments

costco stock technical analysis

Costco released its fiscal fourth-quarter 2021 earnings yesterday after the close of US markets. The discount retailer reported revenues of $62.68 billion which were 17% higher than the corresponding period last year. The revenue growth came in ahead of the analysts’ estimate of $61.56 billion.

The company’s comparable sales for the quarter, which excludes the impact from foreign exchange and gasoline prices increased 9.4%. Looking at the different regions, comparable sales in the US increased 10.3%. In Canada and international markets, the comparable sales growth was 6.7% and 7.3% respectively. The company’s e-commerce sales increased 8.9% in the quarter. The e-commerce sales growth was quite tepid in the quarter considering that sales increased 42.6% in the fiscal year. That said, as the economy has reopened more people have been shopping at the stores instead of buying them online.

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Costco earnings beat estimates

Costco reported a net income of $1.67 billion in the fiscal fourth quarter and $5.01 billion for the full year. The profitability was better than what analysts were expecting. The company now has 817 warehouses globally of which 565 are in the US and Puerto Rico. Canada comes second with 105 warehouses.

Meanwhile, the company talked about supply-side bottlenecks, just like most other retailers have done. Labor shortages, rising wage costs, port delays, and COVID-19 outbreaks in parts of Asia have led to supply chain issues for many US retailers.

COST imposes limits on some goods

Meanwhile, amid the rising coronavirus cases in the US, there have been instances of people stocking up on essentials, just like we saw during the first wave of the pandemic last year. Costco has put purchase limits on some of the goods like toilet papers, cleaning products, and bottled water.

Admitting that there was a shortage of merchandise last year, Costco CFO Richard Galanti said that “Now they’ve got plenty of merchandise but there’s two- or three-week delays on getting it delivered because there’s a limit on short-term changes to trucking and delivery needs of the suppliers, so it really is all over the board.”

COST stock forecast

Of the 17 analysts polled by TipRanks, 13 rate COST stock as a buy while the remaining four have a sell rating. Its average target price of $468.14 is a premium of only about 3.4%. However, its street-high target price of $525 is a premium of almost 14% over current prices.

Earlier this month, Oppenheimer reiterated Costco stock as a top pick. “We spent time reviewing the company’s prospects into the print. Based on our work, we see limited earnings upside. In addition, following the recent outperformance, we believe the robust and accelerating comp trends reported in recent months are now reflected in shares. As a result, we see the set-up on the print as less attractive,” it said in its note.

Costco target price

In September only, Morgan Stanley raised Costco’s target price from $425 to $500. Jefferies also raised its target price from $500 to a street high of $525. Analysts have been gradually raising COST’s target price over the last year.

COST stock long term forecast

Costco is among the retail companies that have managed to give good competition to e-commerce giants like Amazon. Despite growing competition from e-commerce, Costco has been able to increase its ales above the industry average. Analysts expect the company’s sales to rise 6.2% in the fiscal year 2022 and 7.5% in the fiscal year 2023. The company’s strong membership growth and pivot towards e-commerce would drive long-term growth.

Costco stock valuation

Costco’s valuations have been making some analysts apprehensive. The stock currently trades at an NTM (next-12 months) PE multiple of 39.9x. The multiples have averaged 33.8x over the last three years and 31.1x over the last five years. To be sure, the valuation premium is also due to the elevated valuations of the broader markets amid the unprecedented monetary policy easing and fiscal stimulus in the US.

All said the valuations would appear a bit frothy here. While some brokerages including Barclays were expecting the stock to fall after the earnings, it is trading marginally higher after the earnings. At these valuations, almost all the positives look baked in COST stock.

COST stock technical analysis

COST stock looks mixed on the charts. It is trading above the 50-day, 100-day, and 200-day SMA (simple moving average). The 50-day SMA, which is currently at $442.78 is strong near-term support. However, the stock trades below the 10-day, 20-day, and 30-day SMA which indicated short-term bearishness. The MACD (moving average convergence divergence) also give a sell signal. However, the 14-day RSI of 49.4 is a neutral indicator.

Overall, Costco looks among the best retail stocks to buy. However, it might be prudent to wait for a correction in the stock before buying.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance as majors and also holds a CFA charter. He has over 14 years of experience in financial markets. He has been writing extensively on global markets for the last seven years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.