3 Key Reasons Growth-Focused Investors Should Pay Attention to Costco (COST)

Why Growth Investors Should Consider Costco

Growth-oriented investors are always on the lookout for stocks that demonstrate strong financial expansion, as these companies often attract significant market interest and can deliver impressive returns. However, identifying truly outstanding growth stocks can be a challenging task.

One reason for this difficulty is that growth stocks typically come with higher risk and greater price fluctuations. Investing in a company whose growth momentum has slowed or ended can result in notable losses.

Fortunately, tools like the Zacks Growth Style Score—part of the Zacks Style Scores framework—make it easier to pinpoint promising growth stocks by evaluating a company’s genuine growth potential beyond standard metrics.

Costco (COST) currently stands out as a top recommendation from this system. The company not only boasts a strong Growth Score but also holds a high Zacks Rank.

Research indicates that stocks with the most attractive growth characteristics tend to outperform the broader market. The best results are often seen in companies that combine a Growth Score of A or B with a Zacks Rank of #1 (Strong Buy) or #2 (Buy).

Below are three key reasons why Costco is an appealing growth stock at this time.

Earnings Expansion

For growth investors, robust earnings growth is a primary objective, as rising profits often signal a company’s strong future prospects and potential for share price appreciation. Double-digit earnings growth is especially desirable.

While Costco’s historical earnings per share (EPS) growth rate is 13%, the focus should be on future projections. This year, Costco’s EPS is forecasted to climb by 12.4%, outpacing the industry average of 10.2%.

Increasing Cash Flow

Cash flow is essential for any business, but rapid cash flow growth is particularly valuable for companies focused on expansion. Ample cash reserves allow these businesses to invest in new initiatives without relying on costly external financing.

Currently, Costco’s year-over-year cash flow growth stands at 10.9%, surpassing many competitors and exceeding the industry average of 6.8%.

Looking at the longer term, Costco’s annualized cash flow growth rate over the past three to five years has reached 13.4%, compared to the industry’s 4.6% average.

Upward Earnings Estimate Revisions

Another important indicator is the trend in earnings estimate revisions. A positive shift in analyst expectations often correlates with near-term stock price gains.

Costco has recently seen upward revisions in its current-year earnings forecasts, with the Zacks Consensus Estimate rising by 0.4% over the last month.

Summary

Costco’s impressive Growth Score of A, combined with its Zacks Rank #2 and recent positive earnings estimate revisions, make it a compelling option for growth-focused investors.

This strong combination suggests that Costco is well-positioned to outperform and is a solid candidate for those seeking growth opportunities.