Are you considering taking (or maintaining) a position in Sirius XM Holdings (SIRI -2.82%)? If so, you are not alone.

Although its satellite radio business hasn’t exactly been hot for a while, its 2019 acquisition of music streaming service Pandora, along with its new focus on ad-supported radio, is attracting investor attention for good reason. The stock has performed poorly lately, but some investors still see great long-term potential in the new and improved Sirius.

However, if you are looking for a more proven work tool, consider owning a piece of Costco wholesale (COST 0.10%) instead. It made many more millionaires than Sirius XM. There is also a much greater chance that this will continue in the near future.

Costco performs despite a competitive environment

Costco is, of course, the powerhouse of the club sector retail industry. As of late last month, nearly 139 million cardholders were paying $65 a year (or $130 for additional benefits) for the right to shop at its roughly 900 stores. The $440 billion company has sales of around $250 billion per year, of which more than $7 billion is turned into net profit.

This has been a real engine of growth. With the exception of a slight and short-lived spell in 2009 due to economic turmoil resulting from the previous year’s subprime mortgage collapse, this retailer has reported sales growth every quarter since its IPO in scholarship in 1985.

COST Income (quarterly) data by Y charts.

Certainly, building new stores has helped, but not as much as one might hope. Only once since 2019 has Costco reported a monthly decline in same-store sales. It was April 2020, when shutdowns due to the COVID-19 pandemic made it impossible to continue business as usual.

Data source: Costco Corp. Chart by author. Sales data is in billions.

Like I said, this company is a heavy hitter. Certainly, it is now also a major player in a crowded and slowly changing market. Not only does this oppose Walmart‘s Sam’s Club, it also obviously competes with Amazon for people who spend money. The two are tough (not to mention bigger) rivals.

Why You Should Buy Costco Stock

However, Costco still enjoys a handful of competitive advantages that can continue to make millionaires patient investors. At first glance, this seems like a poor investment prospect. While no one denies that Costco is great, selling consumer goods isn’t exactly a high-growth business, no matter how good you are at it.

However, don’t overlook the long-term potential of this business. The stock’s 10,000% gain over the last 40 years isn’t a very difficult act to follow – for several reasons.

First, although the idea of ​​paying an annual fee for the privilege of being able to shop at a particular chain store might have seemed outrageous to many customers in the early days of the business, people have become quite comfortable with it. comfortable with subscription-based consumerism. From streaming from services and cell phones to meal kits, software and gym memberships, most people accept that this is now just a not-so-new norm.

This dynamic pairs well with the other new dimension of modern retail. This is the empowerment offered by the Internet. Never before have people been better equipped to compare prices and then crunch some numbers. More than 77 million households and businesses have learned that being a Costco member ultimately saves them money, even with relatively high annual fees and sometimes inconvenient bulk packaging.

This seems to work. CFRA Research reports that club stores like Costco are “effectively absorbing market share from supermarkets” as Kroger And by Albertson.

Today, this relatively American phenomenon is spreading abroad. Although most Costco stores are located in the United States (including 108 in Canada), the company is now growing its international arm as quickly as its domestic operations. It opened three overseas stores last quarter, and plans to add four more before the end of this financial year to bring the number to 175.

Meanwhile, the club retailer plans to open 14 additional stores in the United States this year, capitalizing on the still-mature shopping preferences of domestic consumers.

This will still only scratch the surface of the multi-trillion dollar global consumer goods market, which – if nothing else – continues to expand through population growth alone. The continued proliferation of telecommunications technologies and continued urbanization only reinforce this tailwind. Costco will gain more business if it gives itself the chance to do this.

Just maintain the right mindset

Is this stock poised for immediate, massive gains? No. Even in good years, this retailer’s revenue growth is limited to single digits. This is unlikely to change in the foreseeable future.

The shares are also expensive, trading at 55 times this fiscal year’s projected earnings per share, or $18.02. THE crowd of analysts also seems concerned about this valuation. Nearly half rate Costco shares as a hold rather than a buy, while the stock’s price is slightly below analysts’ current consensus target of around $1,011.

Costco may be slow growing, but it’s a reliable producer in any environment. The company has clearly mastered the art and science of membership-based warehouse purchasing. Profits also grow faster than revenues, with scale advantages increasingly realized as the business grows.

The fact is, this is a quality business that you should expect to pay a premium to participate in – even if a group of analysts don’t really see it that way at the moment. It’s not easy to say the same about Sirius XM right now.

The trick? You just need to be willing to stick with Costco for the long haul to fully capitalize on its potential. It’s a slow and steady trade that wins the race, while Sirius XM leans more toward an all-or-nothing, lightning-in-a-bottle perspective.