Costco Raises Price Target After People Keep Paying Membership Fees

Costco's membership renewal rates ticked up. Analysts celebrated by increasing their price target. The stock went higher because people continue to pay sixty dollars a year for the privilege of buying mayonnaise in containers the size of paint buckets.

The debate isn't totally settled. This means the renewal rate improved but not enough for everyone to shut up about it. Financial journalists will spend the next six months writing about whether 92.9% is meaningfully different from 92.7%. Spoiler: it isn't.

Here's what happened. Some guy at a brokerage firm looked at Costco's membership data. He saw a number go up slightly. He opened Excel. He changed his price target from one arbitrary figure to a slightly higher arbitrary figure. He published a note. Retail traders read the headline. They bought the stock. They will tell their friends they invested based on fundamentals.

The membership renewal rate is a key metric. This is what analysts call a number that sounds important enough to justify their existence. Costco could report that 73% of customers bought rotisserie chicken on a Tuesday and someone would upgrade the stock to outperform.

Membership fees are recurring revenue. Wall Street loves recurring revenue. It's predictable. It's stable. It requires no effort after the initial sale. Costco figured this out decades ago. They built an entire business model around charging people for access to bulk toilet paper. The real genius was convincing analysts this deserves a premium valuation.

The new price target is higher than the old price target. The old price target was reached last month. The new one will be reached next quarter. Then another analyst will publish another note with another price target. The cycle continues until the stock splits or someone notices that technical patterns predicted every move six months in advance while everyone else argued about renewal rates.

Retail traders will ignore the charts and chase the headline because reading a price target feels like research.

Photo by Marcus Reubenstein on Unsplash