Costco Poised for Another Stock Split in 2024 After 24 Year Hiatus

John Smith

Costco Wholesale (NASDAQ: COST) is a widely owned public company that could be gearing up for a stock split in 2024. It would be the warehouse club’s first stock split in nearly 24 years.

Costco’s Dominant Market Position

Costco has split its shares three times since its IPO in 1985, but it’s been close to 24 years since its last 2-for-1 stock split in January 2000. With shares currently trading around $660.12 (as per 29th Dec, 2023 1:14:01 PM), many investors feel the price is getting too high and a split could be on the horizon.

Costco enjoys a dominant position in the warehouse club sector with its enormous size and scale. The company boasts over 870 warehouse locations globally and over 200 million member households.

This gives Costco tremendous purchasing power to buy inventory in bulk from suppliers at rock bottom prices.

Buying in such large quantities generates big cost savings that Costco is able to pass along to its members in the form of low prices.

This creates an exceptional value proposition that drives strong membership renewal rates over 90% in the U.S. and Canada. Costco’s membership model is a cash cow, providing over $3.9 billion in high-margin annual fee income.

Recession Resilient Business Model

While some retailers struggle during economic downturns, Costco continues to excel. The company has proven to be recession resilient by selling low-priced essentials that shoppers need, like food, beverages, household supplies and prescription drugs.

Costco has consistently gained market share from competitors during recessions. The low-cost appeal becomes even more enticing for shoppers when budgets get tight.

Costco’s subscription membership model also incentivizes shoppers to maximize their investment by consolidating more of their routine household spending at its warehouses.

Impressive Track Record of Success

Costco has an impressive track record of generating consistent positive returns for long-term shareholders. The stock has finished up every year for the past 22 years with only 3 down years in the company’s entire history since its IPO.

Over the past 5 years alone, Costco has achieved a total return of 130% including dividends. The S&P 500 returned just 59% over the same period.

Costco has a proven strategy that works exceptionally well. The company combines high sales volumes with fast inventory turnover and razor thin margins to drive strong profitability from its membership-based low cost operating model.

This produces significant free cash flow to fund ongoing expansion and return capital to shareholders.

Financial Performance Supports Additional Stock Split

Costco has the financial strength to execute another stock split. The company has over $13 billion in trailing 12-month operating cash flow providing ample liquidity. Costco also maintains a rock solid investment grade credit rating to easily access capital markets if needed.

With shares almost 3 times higher than the last stock split, Costco may want to split its stock to make the share price more affordable for retail investors. A lower nominal share price around $350 would open up Costco’s stock to a wider universe of potential buyers.

Higher trading liquidity from increased retail demand often results in less volatility and more stable valuations. This makes stock-based acquisitions easier with a share currency less susceptible to wide fluctuations.

Outlook Remains Strong for Continued Growth

Costco is well-positioned for continued growth and expansion after another record year in 2023. A growth of 6.76% from 2022 to 2023 resulted in yearly sales of $242.29 billion for Costco. Up from $155 million in 2012, the average sales per warehouse in 2023 reach $252 million.

Costco plans to open 31 new warehouses globally in 2024 including locations in China and New Zealand. Ongoing investments in next-day grocery delivery, online order fulfillment and Costco’s mobile app will drive higher digital sales.

With margins among the best in retail and return on invested capital consistently above 15%, Costco has a successful formula for driving earnings, cash flow and shareholder value creation. Its loyal and growing membership base of affluent big-spending households will continue to fuel Costco’s future success.

Conclusion: Stock Split Likely in 2024 if Shares Keep Rising

Given Costco’s attractive fundamentals and growth outlook, the stock could very well continue its steady ascent. If shares trade up towards the $800 level by sometime in 2024, management may decide the time is right for Costco’s next stock split.

After strong gains of nearly 50% in 2022 and 2023, another big move higher in 2024 would likely prompt a 2-for-1 split. This would reset the share price to a more optimal level around $350 – $400 and extend Costco’s long record of rewarding shareholders dating back to its IPO nearly four decades ago.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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