Is Costco Stock Split Imminent? Find Out Now!

The world of stock trading is always abuzz with speculation, and recently, investors have been particularly curious about the possibility of a Costco stock split. With Costco(COST)'s impressive financial performance and Q2 earnings call, many are wondering if a stock split is on the horizon. In this article, we will delve into the factors that might influence a potential stock split, the historical context of Costco’s stock splits, and what experts are saying about the likelihood of such an event.

Costco's Incoming Earnings Preview

Analysts expected Costco's revenue to reach $59.16 billion, but it came in slightly lower at $58.44 billion, still marking a 5.7% year-over-year increase. However, Costco's earnings per share (EPS) beat forecasts, with an adjusted EPS of $3.92 compared to the expected $3.62.

Key financial metrics showed net sales rising by 5.7% in Q2 to $57.33 billion and by 5.9% year-to-date to $114.05 billion. Net income increased to $1.743 billion, with earnings of $3.92 per diluted share. Membership fees grew to $1.111 billion, and e-commerce performance was strong, with an 18.4% increase in Q2 and a 12.2% rise year-to-date.

Costco's same-store sales growth was 5.8%, excluding gas and foreign exchange. Regionally, the U.S. saw a 4.8% increase, Canada 9%, and international markets 8.2%.

Operationally, Costco expanded to 875 warehouses globally and opened its first store in China in January 2024, which saw significant membership growth.

Analyst ratings are optimistic. Oppenheimer raised its price target from $760 to $805, Telsey from $750 to $785, Goldman Sachs from $665 to $749, and Wells Fargo from $610 to $675.

Looking ahead, key items to watch include a potential increase in membership fees, which could drive revenue, and further international expansion, particularly in China.
 

Why Companies Opt for Stock Split?

Stock splits can be a bit tricky to grasp. When a company splits its stock, the number of outstanding shares increases according to the split ratio. For instance, if a company announces a 3-for-1 split and you own 100 shares before the split, you will own 300 shares after the split. Simultaneously, while the number of shares rises, the stock price decreases by the same ratio. Using the previous example, if you held 100 shares at $30 each before the split, after the split, you would own 300 shares at $10 each.

Since the total number of shares and the stock price adjust proportionally, the overall market capitalization of the company remains unchanged.

Stock splits usually occur when a company's share price has significantly increased. A high share price can reduce trading activity because it seems out of reach for average investors.

Although a stock split doesn't change the inherent value of the business, many investors see the lower price as a more accessible opportunity to buy shares. Essentially, stock splits make it easier for a broader range of investors to purchase shares, who might have been deterred by the previously high price.

Is Costco Stock Going to Split?

Analysts predict that Costco might follow Walmart's lead and split its stock in 2024. Let's see what Intellectia.AI forecasts about Costco's potential stock split. 

Over the past year, notable stock splits outside the tech and healthcare sectors have included beverage maker Celsius and big-box retailer Walmart.

Recently, other companies related to the retail sector have also proposed stock splits. Fast-casual restaurant chain Chipotle Mexican Grill is awaiting shareholder approval for a 50-for-1 split. Additionally, Sony has announced its intention to pursue a stock split.

Looking at the chart below, investors can see that Costco has performed exceptionally well over the last decade. The stock has surged nearly 600%, reaching a current price of $795, close to its all-time high.

Given that Costco hasn't split its stock since 2000, coupled with its impressive returns and high share price, it's not surprising that management might consider announcing a split sometime soon.

Should I Buy Costco Stock?

Evaluating a stock’s value solely based on its share price can be misleading. To truly understand a stock’s relative value, investors should compare the company against its peers. The chart above benchmarks Costco against other big-box retailers and cost-conscious brick-and-mortar stores using their price-to-earnings ratios.

Physical retail faces stiff competition from e-commerce and online marketplaces, but Costco stands out due to its massive volume of consumer staples—products that people need regardless of economic conditions. Despite challenges like lingering inflation and high borrowing costs, Costco remains in a strong position.

The notable valuation premium above its competitors suggests that investors regard Costco as a superior stock among leading retailers. While a stock split could be beneficial, investors shouldn't wait for it to happen, as it might never occur. Given Costco's strong position in the retail sector and its resilience during inflationary periods, buying and holding shares for the long term appears to be a sound strategy.