Costco (NASDAQ:COST) and Lululemon (NASDAQ:LULU) are two standout performers that finished last year with a bang. With shares now up around 40% and 53%, respectively, over the past year, questions linger as to whether they can post another strong year of gains. Indeed, valuations have swollen quite a bit in recent months, as each company impressed investors with their recent quarters.
Despite this, there are many growth levers each firm can pull to keep growth going strong in a year that could see market gains broaden beyond the leading AI stocks. China, in particular, is a market that holds tremendous promise as each firm looks to expand its footprint at the international level.
Therefore, let’s check out TipRanks’ Comparison Tool to see how the two stocks stack up with analysts for the year ahead.
Costco (NASDAQ:COST)
Costco is a big-box retailer that the late Charlie Munger praised on numerous occasions in the past. And it’s really not hard to understand why Munger was such a big fan of the company. Apart from being a place for consumers to go to save a few bucks amid inflation and other economic headwinds, Costco has been a rather exciting place to scratch that “treasure hunter” itch.
Additionally, the firm is incredibly well-run, such that Munger once said he wished “everything else in America was working as well as Costco does.” As a fan of the firm and what it has to offer to the average budget-constrained consumer, I remain a raging bull on COST stock for the long haul.
Undoubtedly, every visit to Costco stands to be just a bit different as new discretionary merchandise (gold bullion, anyone?) is introduced into the mix alongside must-have pantry staples. Let’s say you go to the local Costco for a bulk haul of peanut butter. You may walk out with a bar of gold and perhaps even that massive Teddy Bear plush. It’s Costco’s ability to seamlessly meld discretionary goods alongside everyday low-cost staples that enables the firm to win in all sorts of economic conditions.
In 2023, Costco members may have come for the savings. In 2024 and 2025, when consumers begin to heal, they’ll probably stick around for the fairly-priced discretionary goods.
Indeed, the store layout, abundance of bargains, and free samples galore are just some of the reasons it’s tough to avoid crowds over at the local Costco. With the company experiencing early success in its Chinese expansion, there are many reasons to think the epic Costco stock rally can continue for years to come.
Reportedly, Mainland Chinese consumers have welcomed the first Costco store with open arms. The crowds over at Costco were so massive that crowd control measures were needed. If that’s not a profoundly good sign of what to expect from a continued expansion into China, I don’t know what is.
As it turns out, Chinese consumers love the Costco shopping experience just as much as Americans and Canadians. With a massive runway in the Chinese market and the potential for China’s economy to heal at the hands of a bit of government stimulus, I’d not dare bet against Costco, even after its impressive run to new highs.
If anything, I believe the Chinese opportunity makes Costco stock — which looks quite rich at 46.9 times trailing price-to-earnings (P/E) — a pretty good deal for growth-oriented investors.
Apart from having massive growth prospects in the Chinese market, the firm has some of the most admirable managers in the entire retail scene.
What is the Price Target for COST Stock?
Costco stock is a Strong Buy, according to analysts, with 21 Buys and seven Holds assigned in the past three months. The average COST stock price target of $683.93 implies 0.4% downside potential.
Lululemon (NASDAQ:LULU)
The consumer seems to be alive and well, at least through the eyes of certain top-tier apparel companies, like Lululemon, which recently upped its sales estimates. Undoubtedly, not all apparel companies have been riding high in recent quarters, as consumers appear to be gravitating toward some brands and away from others. And price seems to have little to do with the shift. All things considered, I have to stay bullish on LULU stock as it continues flooring it for investors.
It’s not hard to imagine many Nike (NASDAQ:NKE) customers going over to the Lululemon retail store to get their sportswear. Yes, Lululemon remains expensive, with discounts that tend to be stretched quite thin (forgive the pun, please). Still, consumers continue to buy Lululemon items with both hands, and they’ve shown they’re more than willing to pay a premium sticker price, even with fears that a recession could be around the corner.
In 2023, I would have thought consumers seeking yoga wear would have traded down from Lululemon for cheaper alternatives. Trading down to more affordable comparable goods has been a common theme at grocery stores in recent years. So, what exactly happened with Lululemon? The apparel landscape appears to be shifting in favor of Lululemon. In a prior piece, I highlighted the company’s unique social-media-heavy marketing strategy as a source of strength over rivals like Nike.
As Lululemon continues to do everything right, I believe a consumer sentiment recovery could place an amplifier on recent dynamics that have helped LULU stock hit new highs in a fairly mixed year for apparel companies. Add recent strength in China into the equation, and the stock seems like a freight train capable of picking up speed from here. I wouldn’t bet against the stock.
What is the Price Target for LULU Stock?
Lululemon stock is a Moderate Buy, according to analysts, with 21 Buys, five Holds, and one Sell assigned in the past three months. The average LULU stock price target of $525.00 implies 10.7% upside potential.
Better Buy: COST or LULU Stock?
Costco and Lululemon are great retail companies that still have so much growth left in the tank. As China recovers and each firm looks to expand its footprints into the region, I’d be willing to bet that shares of both firms will be much higher five years from now. Nonetheless, of the two, analysts see more upside (10.7%) in LULU stock for the next year.