What’s Next For Costco Stock?

Costco (NASDAQ: COST) closed fiscal 2025 (August fiscal year) with a strong quarter, modestly beating expectations and reinforcing the strengths that set it apart. Its Q4 earnings of $5.87 per share, up 11% year-over-year, on $86.2 billion in revenue, up 8%, edged past forecasts. U.S. comparable sales rose 5.1%, outpacing Walmart’s (NYSE: WMT) 4.6% and far exceeding Target’s (NYSE: TGT) 1.9% decline, highlighting the warehouse model’s appeal and signaling resilient traffic and steady member spending. That said, U.S. comp sales have steadily softened—from 8.3% in Q2 to 6.6% in Q3 and 5.1% in Q4—indicating a moderation in domestic growth. COST shares have climbed roughly 180% over five years but lagged the market this year, up just 3% versus the S&P 500’s 12% gain. Also see, Buy or Sell Costco Stock?

Digital momentum stood out in Q4: e-commerce sales rose 13.6%, extending Costco’s reach beyond its aisles. Membership income—the high-margin profit engine—jumped 14% to $1.7 billion, reflecting the stickiness of its subscription model.

On the surface, it’s a retail dream. But here’s the catch.

Costco trades at 52x earnings and 57x free cash flow, implying a meager 1.8% cash flow yield. For context, Amazon (NASDAQ: AMZN), with faster top-line growth and exposure to high-margin segments like cloud and advertising, trades at a lower multiple. Costco may boast scale, strategy, and market love—but it comes at a steep price. Even with a strong Q4, rising costs from inflation, tariffs, and labor mean investors may pay closer attention to Costco’s outlook than the quarter’s results. Unlike many of its peers, the company does not provide a full-year forecast, leaving the stock more sensitive to any forward commentary. Separately check, Qualcomm Stock To 2x?

Costco is priced for perfection, and even slight deceleration can cause turbulence. For context, this isn’t a stock immune to volatility. Shares dropped nearly 49% during the 2008 financial crisis, 20% during the Covid-19 panic in early 2020, and 32% in the inflation-driven pullback of 2022. Investors should keep that history in mind, even as today’s fundamentals look strong. For investors who seek lower volatility than individual stocks, the Trefis High Quality Portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

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What’s Driving the Premium?

Business Model Strength

Costco’s valuation rests on consistent performance. Over the past three years, top-line growth averaged 7.3% annually. In the last twelve months, revenues rose 8.1% to $275 billion. Operating income totaled around $10 billion, with an operating margin of 3.8%, and a cash flow margin of 4.6%, generating nearly $12 billion in operating cash flow. Net income reached $8 billion, yielding a net margin of 2.9%, demonstrating Costco’s ability to convert growth into profitability.

High-margin, recurring membership revenue has proven especially resilient. Last fall, Costco raised membership fees for the first time since 2017, adding $5 or $10 for higher-tier members without denting retention.

Operational Scale and Supply Chain Agility

Costco operates 914 warehouses globally, including 629 in the U.S., maintaining its pricing edge through razor-thin margins and the efficiency of Kirkland Signature (Costco’s exclusive private label brand). In Q4, shopping frequency rose 3.7%, while average ticket increased 2.6%, showing growth is traffic-driven, not price-driven.

Its agile supply chain mitigates risks from tariffs and global sourcing. Two-thirds of merchandise is sourced domestically. Localizing Kirkland production and steady demand for essentials like groceries and gas further reduces risk. Scale amplifies pricing power, a key factor sustaining its premium valuation.

Great Business, Stretched Valuation

Costco remains a top-tier operator, but its lofty valuation may be disconnected from fundamentals. Revenue growth is solid but not explosive. Store expansion is slowing, and some new locations may cannibalize existing sales. The premium assumes elevated growth will continue. If comparable sales continue to decelerate, investor confidence—and Costco’s valuation multiple—could come under pressure.

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