Is Costco Stock Worth Buying Now or Too Pricey to Touch?
This premium positioning is particularly noticeable when compared to peers like Ross Stores, Inc. ROST, Dollar General Corporation DG and Target Corporation TGT. While Ross Stores trades at a forward 12-month P/E multiple of 22.72, Dollar General and Target trade at 18.92 and 13.50, respectively.
COST Valuation Picture
Has Costco's Price Run Already Capped Its Upside?
Despite the elevated valuation, investors have shown strong confidence in Costco, supported by its resilient business model, robust membership renewal rates and consistent traffic growth. The company's ability to deliver steady same-store sales gains and earnings resilience, even in a challenging retail environment, has helped sustain buying interest. As a result, the stock has jumped 8.2% so far this year, outperforming the industry's rise of 6.9%.
During the same period, Costco has outperformed Ross Stores and Target but trailed Dollar General. Shares of Dollar General have surged 52%, while Ross Stores and Target have posted declines of 2.1% and 21.3%, respectively.
COST, ROST, DG & TGT YTD Stock Performance
Costco's Fundamentals Remain Robust — Yet Fully Valued
Costco's resilient, membership-based business model remains a key engine of growth, underpinned by exceptionally high renewal rates and operational efficiency. In the third quarter of fiscal 2025, renewal rates stayed robust — 92.7% in the United States and Canada and 90.2% globally — reflecting strong customer loyalty. This, combined with Costco's bulk purchasing power and efficient supply chain, enables the company to maintain competitive pricing and withstand economic pressures better than many peers.
Membership trends continue to support Costco's momentum. The company ended the third quarter with 79.6 million paid household members, marking a 6.8% increase year over year. Executive memberships, a more profitable category for Costco, grew 9% to reach 37.6 million, accounting for 47.3% of all paid members and driving 73.1% of global sales. Membership fee income climbed 10.4%, aided by a recent fee hike, which added approximately 4.6% growth in the quarter.
By steadily enhancing its e-commerce capabilities and investing in fulfillment infrastructure, Costco is creating a more integrated omnichannel shopping experience. Its e-commerce comparable sales rose 14.8% in the third quarter. Costco Logistics deliveries surged 31%, driven by increasing volumes of large and bulky items. The launch of a Buy Now Pay Later program, in partnership with Affirm, has offered members greater purchasing flexibility, especially for higher-priced items.
Meanwhile, Costco's disciplined focus on cost control, product mix optimization and growing penetration of its private-label brand, Kirkland Signature, continues to support margin expansion. Kirkland Signature sales outpaced overall company growth in the third quarter, with penetration rising 50 basis points year over year. The company continues to shift more Kirkland Signature sourcing to the regions where items are sold, helping reduce costs and mitigate tariff impacts.
Competitive Landscape: Can Costco Stay Ahead?
Costco's impressive sales figures are part of a larger retail picture where competition is intensifying. Rivals like Ross Stores, Dollar General and Target are investing in expanding their capabilities and enhancing customer experience.
Moreover, margins remain a critical area to monitor, with potential concerns stemming from any deleverage in the selling, general and administrative rate. Additionally, foreign exchange volatility and tariffs on key imports create uncertainty. Meanwhile, consumer spending is shifting toward essentials, with discretionary spending seeing weaker demand.
How Consensus Estimates Stack Up for Costco
Over the past seven days, the Zacks Consensus Estimate for the current fiscal year has been stable at $17.97. However, for the next fiscal year, the consensus estimate has decreased by a penny to $19.92. These estimates indicate expected year-over-year growth rates of 11.6% and 10.9%, respectively.
COST: A Quality Stock but a Hold for Now
Costco's strong fundamentals, including a growing membership base, solid e-commerce sales and strategic investments, continue to support its market leadership. While the stock's premium valuation warrants caution, its resilient business model offers a compelling case for long-term investors. The prudent move for investors may be to hold existing positions rather than chase the stock at its current highs. Waiting for a better entry point could offer a more favorable risk-reward balance. Costco currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Target Corporation (TGT): Free Stock Analysis Report
Dollar General Corporation (DG): Free Stock Analysis Report
Costco Wholesale Corporation (COST): Free Stock Analysis Report
Ross Stores, Inc. (ROST): Free Stock Analysis Report
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