Amidst today's fast-paced and highly competitive business environment, it is crucial for investors and industry enthusiasts to conduct comprehensive company evaluations. In this article, we will delve into an extensive industry comparison, evaluating Costco Wholesale COST in comparison to its major competitors within the Consumer Staples Distribution & Retail industry. By analyzing critical financial metrics, market position, and growth potential, our objective is to provide valuable insights for investors and offer a deeper understanding of company's performance in the industry.
Costco Wholesale Background
Costco operates a membership-based, no-frills retail model, predicated on offering a select product assortment in bulk quantities at bargain prices. The firm avoids maintaining costly product displays by keeping inventory on pallets and limits distribution expenses by storing its inventory at point of sale in the warehouse. Given Costco's frugal cost structure, the firm is able to price its merchandise below competing retailers, driving high sales volume per warehouse and allowing the retailer to generate strong profits on thin margins. Costco operates nearly 600 warehouses in the United States and boasts over 60% market share in the domestic warehouse club industry. Internationally, Costco operates another 270 warehouses, primarily in markets such as Canada, Mexico, Japan, and the U.K.
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Costco Wholesale Corp | 50.23 | 12.50 | 1.33 | 6.21% | $2.65 | $7.34 | 6.18% |
| Walmart Inc | 32.10 | 5.90 | 0.77 | 6.73% | $11.33 | $41.56 | 7.83% |
| Target Corp | 18.74 | 5.76 | 0.72 | 10.65% | $2.62 | $8.52 | 25.68% |
| Dollar General Corp | 18.55 | 5.48 | 0.91 | 4.33% | $0.65 | $2.81 | 2.42% |
| Dollar Tree Inc | 28.41 | 3.63 | 1.11 | 2.35% | $0.52 | $2.18 | 5.4% |
| BJ's Wholesale Club Holdings Inc | 19.54 | 7.20 | 0.51 | 10.09% | $0.26 | $0.9 | 2.91% |
| Sendas Distribuidora SA | 28.19 | 4.31 | 0.30 | 6.63% | $1.42 | $3.07 | 8.35% |
| Pricesmart Inc | 22.45 | 2.34 | 0.56 | 3.42% | $0.08 | $0.2 | 10.59% |
| Almacenes Exito SA | 24.46 | 0.51 | 0.15 | 1.88% | $426.56 | $1373.83 | -12.61% |
| Average | 24.05 | 4.39 | 0.63 | 5.76% | $55.43 | $179.13 | 6.32% |
By analyzing Costco Wholesale, we can infer the following trends:
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The current Price to Earnings ratio of 50.23 is 2.09x higher than the industry average, indicating the stock is priced at a premium level according to the market sentiment.
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With a Price to Book ratio of 12.5, which is 2.85x the industry average, Costco Wholesale might be considered overvalued in terms of its book value, as it is trading at a higher multiple compared to its industry peers.
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With a relatively high Price to Sales ratio of 1.33, which is 2.11x the industry average, the stock might be considered overvalued based on sales performance.
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The Return on Equity (ROE) of 6.21% is 0.45% above the industry average, highlighting efficient use of equity to generate profits.
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The company has lower Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $2.65 Billion, which is 0.05x below the industry average. This potentially indicates lower profitability or financial challenges.
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The gross profit of $7.34 Billion is 0.04x below that of its industry, suggesting potential lower revenue after accounting for production costs.
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The company is witnessing a substantial decline in revenue growth, with a rate of 6.18% compared to the industry average of 6.32%, which indicates a challenging sales environment.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio is a key indicator of a company's financial health and its reliance on debt financing.
Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company's financial health and risk profile, aiding in informed decision-making.
When comparing Costco Wholesale with its top 4 peers based on the Debt-to-Equity ratio, the following insights can be observed:
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In terms of the debt-to-equity ratio, Costco Wholesale has a lower level of debt compared to its top 4 peers, indicating a stronger financial position.
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This implies that the company relies less on debt financing and has a more favorable balance between debt and equity with a lower debt-to-equity ratio of 0.36.
Key Takeaways
The high PE, PB, and PS ratios suggest that Costco Wholesale is relatively overvalued compared to its peers in the Consumer Staples Distribution & Retail industry. On the other hand, the high ROE indicates strong profitability, while the low EBITDA, gross profit, and revenue growth may raise concerns about the company's operational efficiency and growth potential within the industry sector.
This article was generated by Benzinga's automated content engine and reviewed by an editor.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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