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Costco stock rides high as shoppers demand staples

Investors are turning their interest towards Costco (NASDAQ:COST) stock as America tries to cope with the impact of the novel coronavirus. The chain saw its traded shares go up 5% in 2020, while the S&P 500 has fallen more than 16%. Retailers such as Costco, Walmart, and Kroger stores are seeing a spike in customers stocking up on essentials, while department stores like Macy’s have temporarily shut down their stores

Costco stock rides high...

Investors are bullish on both Costco and Walmart with Costco coming off as the top pick. Based on a bullish view on US large-cap growth, Costco’s stock has been marked as a “buy” since April of 2018, outperforming through the sell-off.  With the focus remaining on long-term recovery, Costco has been able to outperform during market rallies in recent years as well.

The Washington-based group’s membership model works well to enhance customer loyalty, which is crucial during a time of crisis. Other factors, such as earnings and revenue growth contribute to a favourable picture for Costco.

The firm’s consistent gains since late 2018 have pushed its valuation to 33 times forward earnings. The company’ has been implementing modest growth strategies alongside better price management. Coupled with strong membership trends and increasing penetration of e-commerce business –  these factors have helped the company sustain an impressive comparable sales run. The company witnessed same-store sale growth of 12.1% during the month of February. Its performance also benefited from an uptick in sales due to coronavirus-led demand spike. This boosted the monthly same-store by roughly 3%.

Costco has made various steps to cements its status as one of the dominant warehouse retailers by selling products at heavily discounted prices, launching a new CostcoGrocery service to deliver non-perishable items to buyer’s home, and expanding same-day grocery delivery service in collaboration with grocery delivery firm Instacart. A differentiated product range also helped the company diversify into the upscale shopping market.

All of this has contributed to Costo’s stock trending upward and future outlook for the chain looks promising. Costco has a Zacks Rank #2 (Buy) as analysts expect an above-average return from the stock in the coming months.

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Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.

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