Is Costco Stock a Buy, Sell, or Hold in 2025?

Globe and Mail

2 days ago

Key Points
The company's sales and earnings are growing at a healthy clip.
Costco's business is nearly recession-proof and has a high membership renewal rate of 93%.
As the company expands its store locations, Costco has the potential to grow its memberships.
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Costco Wholesale (NASDAQ: COST) has been very successful at building a strong brand that continues to resonate with its customers. Whether people are looking for a good deal on electronics, shopping for back-to-school clothes, or buying groceries, Costco's discount warehouses are a popular destination.
That's made Costco's stock quite popular among investors. The company's share price is up 178% over the past three years, easily outpacing the S&P 500 's gains.
But is the stock still a good buy right now? Here are a few reasons why Costco should be on your buy list in 2025.
1. Costco has strong sales and earnings
Many companies are experiencing big share price gains right now, but some of them don't have the revenue and earnings to back up their stock growth. That's not true for Costco.
The company's sales rose 8% in the third quarter to nearly $62 billion, and earnings jumped to $4.28 per share, a 13% increase from the year-ago quarter. Costco's also experiencing strong growth from its e-commerce business, which grew by 16% in the first 12 weeks of the year.
The result is a retailer that's very profitable and is on track for more growth. Analysts' consensus estimate for Costco's 2025 earnings is about $18 per share, which would be a nearly 12% increase from 2024.
2. Costco is recession-proof
OK, fine, no company is 100% recession-proof, but Costco is certainly recession-resilient. One of the reasons it can weather a recession, or economic downturn, well is that its members are loyal. The company enjoys membership renewal rates of 93% in both the U.S. and Canada.
When customers need to pinch pennies, Costco saves them money. A recent study found that buying groceries at Costco was 9.5% cheaper than at a comparable Walmart. Costco CEO Ron Vachris emphasized the value its Kirkland Signature brand brings to customers, saying on the Q3 earnings call:
"In times of consumer uncertainty, our Kirkland Signature brand is uniquely positioned to provide our members with great quality and great values. And during the third quarter, sales of Kirkland Signature items again outpaced our overall sales growth, with our KS sales penetration up approximately 50 basis points year-over-year."
What's more, an estimated one-third of Costco's members have a household income above $100,000. That gives the company a sizable advantage over some of its retail competitors, and it's a good indicator that even if tough economic times are around the corner, Costco members will likely stick around.
3. The company continues to open stores
While some retailers are concerned about increasing their footprint, Costco's sales and earnings success are giving it the confidence to build more stores. The company will open 27 new locations this year alone, giving it 914 warehouses worldwide.
More stores will likely mean more membership growth. That's important for the company because it makes the majority of its money from membership fees, which essentially have a 100% profit margin, with each new store potentially bringing thousands of new memberships.
Just keep this in mind about Costco stock
It's worth mentioning that Costco stock isn't exactly cheap right now. The company's shares have a price-to-earnings (P/E) ratio of 54, which is pricier compared to Walmart's P/E ratio of 42.
That doesn't mean the stock should be avoided, but investors should know they're paying a premium for it right now. However, with sales and earnings rising, high membership loyalty, and expanding store locations, Costco is well-positioned to continue growing in the years ahead.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.