Shares of Costco Wholesale Corporation COST have shown a remarkable run on the bourses, surging 37.6% over the past year. This impressive uptick in the stock price has left investors contemplating whether this momentum can continue or if the stock is due for a pause. With its market dominance and resilient business model, Costco has long been a favorite among investors seeking stable growth. But with the stock’s hefty gain, is it still a compelling buy, or has it become too expensive?

Closing at $927.37 yesterday, Costco has outpaced its industry and the broader S&P 500 index, which have risen by 21.8% and 25%, respectively, in the said period.

COST Stock Past-Year Performance

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As the retail giant continues to benefit from strong consumer demand and its unique business model, let's dive into the fundamental drivers that are keeping Costco’s stock in the spotlight.

Costco's Membership Base & Pricing Power: Key Pillars

Costco’s membership-based business model ensures a steady revenue stream. The retailer's ability to grow its membership base is a key factor behind its continued success. Costco has seen impressive membership renewal rates, often exceeding 90% in the United States and Canada. The renewal rates are a testament to Costco’s ability to retain its customers, driven by a combination of competitive pricing and quality products. Membership fee income grew 7.8% year over year during the first quarter of fiscal 2025. Paid household memberships rose 7.6%, while Executive Memberships, which contribute 73.1% of worldwide sales, increased 9.2%.

The company's ability to offer high-quality products at low prices has allowed it to capture market share. Moreover, Costco’s private-label brand, Kirkland Signature, has been a major driver of consumer loyalty and repeat business. As a result, Costco has consistently registered comparable sales growth. The metric rose 7.4% in December. This follows consecutive increases of 3.1% and 5.1% in November and October, respectively.

Costco’s cost-efficient operations are a significant contributor to its profitability. The company’s ability to maintain low operating costs while delivering high-quality goods allows it to operate on thin margins but on greater volume. Moreover, Costco's expansion into international markets is expected to fuel its growth. During the first quarter of fiscal 2025, COST opened six net new warehouses, of which four were outside the United States.

While Costco is traditionally known for its brick-and-mortar stores, it has successfully leveraged e-commerce to capture the growing trend of online shopping. Total e-commerce comparable sales grew 13% during the first quarter. This growth was largely driven by Costco Logistics, the company’s platform that specializes in large, bulky items such as appliances and furniture. Costco Logistics made nearly 1 million deliveries in the first quarter. The company’s U.S. app was downloaded 2.9 million times in the quarter, bringing total downloads to approximately 42 million. Costco Next, a curated online marketplace for exclusive products, achieved record sales during Thanksgiving and Cyber Monday.

What May Pull Back Costco’s Momentum?

Costco's impressive sales figures are part of a larger retail picture where competition is intense. Rivals like Walmart WMT and BJ’s Wholesale Club BJ, which also cater to value-conscious consumers, are investing in expanding their e-commerce capabilities and enhancing customer experience. Amazon AMZN continues to dominate online shopping, pushing traditional retailers to innovate rapidly.

Also, underlying Inflationary pressures are causing consumers to be more judicious with their disposable income, affecting various merchandise categories and creating hurdles for retailers.

The aforementioned headwinds pose challenges to Costco's stock. Moreover, margins remain a critical area to monitor, with potential concerns stemming from any deleverage in the selling, general and administrative (SG&A) rate. In the last reported quarter, SG&A expenses rose 9.1% year over year due to higher employee wages implemented in July 2024 and incremental costs associated with expansion and logistics. 

Despite Costco's strong performance, there are concerns from a valuation perspective. The stock is trading at a significant premium to its peers. Costco's forward 12-month price-to-earnings ratio stands at 49.87, higher than the industry’s 30.33 and the S&P 500's 22.13. This suggests that investors may be paying a high price relative to the company's expected earnings growth. COST has a Value Score of D.

Snapshot of Costco's Valuation

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Costco Trading Below 50-Day Moving Average

Costco’s stock is currently trading below its 50-day moving average, a sign of short-term weakness. This level is often seen as a gauge for momentum, and a drop below it can suggest a potential slowdown. While this could reflect a temporary pullback, Costco’s solid fundamentals, including strong membership growth and pricing power, may help the stock recover.
 

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How Do Estimates Measure Up for COST?

Reflecting the positive sentiment around Costco, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 30 days, analysts have increased their estimates for the current and next fiscal years by 14 and 26 cents to $17.99 and $19.67 per share, respectively. These estimates indicate expected year-over-year growth rates of 11.7% and 9.4%, respectively.

See the Zacks Earnings Calendar to stay ahead of market-making news.

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Hold Costco or Book Profits?

Investors who believe in Costco’s long-term potential may find value in holding the stock, given its resilience in navigating economic challenges, consistent membership growth and expanding footprint. Moreover, positive estimate revisions highlight the company’s strong fundamentals. However, for those focused on short-term gains or cautious about the stock’s high valuation and recent volatility — evidenced by its trading below the 50-day moving average — booking profits at this level might be a wise decision. 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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