Investment Analysis of Costco: A Comprehensive Strategic and Financial Evaluation

Author

Shane Johnson

Document Type

Honors Thesis

Degree Name

Bachelor of Business Administration

Date of Award

Spring 4-16-2025

Abstract

We provide an investment analysis of Costco Wholesale Corporation by conducting an analysis of the fundamental business model, industry standing, financial performance, and long-term investment potential. As a leader in the warehouse retail industry, Costco has experienced significant growth through its cost-efficient operations, bulk sales approach, superior supply chain management, membership fee revenue streams, high quality product offerings, and strong customer loyalty. This research seeks to answer the question: Is Costco a good investment opportunity based on its valuation, competitive positioning, financial performance, and overall industry outlook? We begin with a business and industry overview, analyzing Costco’s business strategy in the wholesale retail sector. This section will provide the reader with a detailed qualitative analysis by using Porter’s Five Forces framework and SWOT analysis. We then provide a financial analysis using a twostep framework, beginning with a detailed financial evaluation of Costco individually, then comparing Costco’s financial performance with rival firms and industry benchmarks. We use quantitative methodologies including a Discounted Cash Flow (DCF) model, sensitivity and scenario analysis, and financial ratio analysis. We provide an analysis on return on equity (ROE), profit margins, debt ratios, and operating efficiency. We provide a risk analysis to evaluate multiple critical macroeconomic factors, including inflation, tariffs, and government policy. Additionally, the risk analysis will assess operational and firmspecific risks such as supply chain dependency and disruptions, geographic store concentration and dependency, changing consumer demand, and competitor actions. The thesis concludes with a final investment recommendation, combining all the analysis findings into one comprehensive conclusion.

Advisor

Srinvias Nippani

Recommended Citation

Johnson, Shane, "Investment Analysis of Costco: A Comprehensive Strategic and Financial Evaluation" (2025). Honors Theses. 277.
https://digitalcommons.tamuc.edu/honorstheses/277