Where Will Costco Stock Be in 3 Years?

I could sit here all day, trying to guess what Costco Wholesale (NASDAQ: COST) might do in the next three years. Or I could take the easy way out and listen to CEO Ron Vachris instead.

The warehouse retailer reported third-quarter results last week, after all. The earnings call should hold plenty of valuable information.

So I jumped in to see what Vachris and his team had to say about Costco's long-term strategy. I was not disappointed. Here are the top takeaways from Costco's sizzling fresh earnings call.

The $1.50 hot dog lives on

Vachris took the CEO seat in January 2024, and investors might wonder if he's tempted to shake things up. Long story short: not where it counts. The pricing philosophy remains what it's been since the era of founder Jim Sinegal: Costco is the first to drop prices, last to raise them.

On the earnings call, management highlighted several cases where Costco cut prices this quarter despite inflationary pressures -- Kirkland Signature crispy wings, golf balls, and king-size sheets all got markdowns amid rising production costs. And yes, they're expanding hot dog production capacity. The $1.50 frank-and-soda combo lives on.

Costco embraces artificial intelligence

But Vachris isn't just keeping the lights on. He's pushing Costco into territory his predecessors didn't explore. Arguably, Jim Sinegal and Craig Jelinek didn't have access to the technology that Vachris is leveraging. (Yep, that's Costco's entire CEO history; three names in 43 years.)

Management disclosed that Costco is working with "the leading AI companies" to improve how its products appear in large language model search results. That hyperspecific idea feels obvious in online ad services. It's refreshing to see Costco's leaders try this promising tactic in the retail industry.

And the AI-search optimization project is off to a strong start. Traffic from AI-driven search is still small but growing by triple digits, with the highest conversion rate of any traffic source.

Image source: The Motley Fool.

World domination, one pallet of paper towels at a time

Costco is also accelerating its physical footprint. Vachris wants 30-plus new warehouses per year. China, Japan, South Korea, Spain, and France are all in the crosshairs of international expansion prospects. Many of today's highest-volume warehouses are also relocating to lots with more parking space and room for more gas pumps.

The company also wants your impulse purchases to arrive before you've had time to reconsider your online orders. Same-day delivery now averages under 45 minutes in the U.S., and the company just rolled it out in Spain and France. Member satisfaction ratings average 4.8 out of 5. Same-day delivery buyers tend to be Costco's biggest spenders.

Costco in 2029: bigger, smarter, still cheap hot dogs

The company keeps growing, both in physical presence and next-era ideas. In 2029, Costco should be larger, smarter about AI, and still firmly planted in its famous low-cost tradition.

So if you ever wondered why Costco's stock trades at richer valuation multiples than Walmart (NASDAQ: WMT) and BJ's Wholesale Club (NYSE: BJ), there's your answer. Yesteryear's low-cost warehouse is still a retail heavyweight, now with a side of AI-powered brains.

Costco looks expensive at a 48 price-to-earnings ratio and 1.5 price-to-sales multiple. Over the next three years, Vachris gets to show that the low-cost retailer deserves a premium valuation.

Anders Bylund has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.