Prediction: Costco Will Join the $1 Trillion Club by 2033

Here is a prediction I feel good about: Costco Wholesale (NASDAQ: COST) will join the $1 trillion club by 2033. The warehouse retailer is worth roughly $417 billion today, so to reach a 13-figure market cap, it will need to grow by just about 140%. That may sound ambitious for a company that sells rotisserie chickens and bulk packages of paper towels, but Costco has one of the most reliable growth machines in all of retail, and the math is more achievable than you might think.

The secret to Costco is that it barely makes a profit at the register from selling groceries and household goods. It makes its profits from selling memberships. The company now counts more than 40 million paid household memberships, with over 82 million cardholders in total, and a renewal rate above 92%, meaning almost everyone who joins stays. Membership fee income, which is nearly pure profit, keeps climbing, helped by a recent fee increase. That sticky recurring revenue is the closest thing retail has to a subscription business, and it is remarkably durable in any type of economy.

Costco has plenty of room left to grow

Costco is also far from finished with its expansion. It is opening new warehouses at a pace of more than 30 a year, backed by billions of dollars in annual investments, and management has laid out a five-to-10-year roadmap for continued growth across the U.S. and abroad.

Its e-commerce sales have climbed more than 20%, with artificial-intelligence-driven product recommendations lifting online spending. For a company this large to still be growing its store base and digital sales at a clip that healthy is exactly what it will take for it to reach a $1 trillion market cap.

Why I could be wrong

I will be honest about the risks here. Costco already trades at a rich valuation, well above that of a typical retailer, so a big chunk of its expected future success is arguably already priced into the stock. If that premium multiple compresses, the stock could grow more slowly than the business does, and the point at which it could pass the trillion-dollar milestone would slip further into the future.

Intensifying competition or economic weakness for consumers could also cool its growth pace.

However, whether Costco crosses the $1 trillion mark in 2033 or a year or two later, the deeper point stands. This is one of the steadiest compounding machines in the market, powered by loyal members who happily pay to shop in its stores. I think that combination of dependable membership profits and a long runway of new warehouses will get it into the trillion-dollar club within the next several years. Own it for the compounding, not the exact date, and let one of retail's best business models do the heavy lifting.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.