Considering the Progress in AI: Is It Wise to Purchase This Remarkable Stock, Which Has Increased by 232% in the Prior Half-Decade?
Costco Wholesale Corporation (COST) has demonstrated a strong financial performance, making it an attractive investment option compared to the S&P 500, despite its high price-to-earnings (P/E) ratio.
In the third quarter of 2025, Costco reported a revenue of $63.2 billion, marking an 8% increase year-over-year, with net income up 13% to $1.90 billion and EPS rising to $4.29 from $3.79 the previous year. This robust growth is forecasted to continue, with revenue growth projected at 6.6% annually over the next three years, outpacing the broader U.S. Consumer Retailing industry’s projected 4.9% growth rate.
Costco's impressive returns are evident over both 5 and 10-year periods, indicating resilience and effectiveness in its business strategy. The stock currently trades with a P/E ratio of approximately 55.7, significantly higher than the average market P/E, reflecting high investor expectations for future growth. However, its price-to-earnings-growth (PEG) ratio is around 6.13, which is quite elevated and suggests that Costco’s earnings growth may not fully justify its current price relative to traditional benchmarks.
Despite the high P/E ratio, Costco maintains strong financial health with a debt-to-equity ratio of 0.21 and a current ratio of 1.02, indicating solid liquidity and low leverage. Analysts continue to rate Costco shares as "outperform" and price targets hover around $1,060 to $1,075, suggesting confidence in the stock’s medium-term upside despite near-term volatility. Forecast models predict Costco’s stock price could rise by roughly 57% between 2025 and 2026, with longer-term forecasts indicating continued growth reaching around $2,450 by 2035.
The high P/E ratio is justified by Costco’s consistent earnings growth, strong return on invested capital (23%), and industry-leading sales per square foot, which reflect its durable competitive advantages and operational efficiency. Costco's brand is strong, built on its treasure hunt shopping experience and low-priced, high-quality goods. The company has 79.6 million memberships as of May 11, 202x, up 6.8% year over year.
Costco's selling, general, and administrative expenses were 9% of total revenue in its fiscal Q3. The company's valuation is currently high, with a price-to-earnings ratio of 56.8, making it potentially less attractive for investors to buy the stock at the current time. However, Costco continues to perform well despite the rising popularity of online shopping, indicating long-term durability.
Costco's overall business model allows it to keep its merchandise prices low, relying primarily on membership fees for profits. The company booked $62 billion in merchandise sales in its fiscal Q3. Costco pays a $1.30 per share quarterly dividend, but also occasionally approves sizable one-time special dividends. The latest special dividend was a distribution of $15 per share in January 2024.
Costco's same-store sales increased by 5.7% in the latest fiscal quarter. The company operates a membership-based model, where customers pay annual dues for the right to shop. Costco's earnings per share have climbed at a compound annual rate of 12.1% in the past five years. The one prior to that was for $10 a share, distributed in December 2020.
Costco is well-regarded by the investment community, with respected investor Charlie Munger never selling a single share of Costco from his personal holdings and often publicly expressing his love for the company. Costco is a leading warehouse club operator and enjoys scale advantages that help support its economic moat.
In conclusion, while Costco’s high P/E ratio indicates a premium valuation, its strong growth trajectory, consistent earnings beats, robust financial health, and positive analyst sentiment support its positioning as a solid investment choice compared to the broader S&P 500 index. Investors should weigh the premium paid against Costco’s potential for sustained growth and resilience in the retail sector. For those prioritizing stable growth and quality, Costco remains a recommended investment, albeit with the understanding that valuation multiples are elevated relative to the market average.
- The impressive quarterly earnings of Costco Wholesale Corporation suggest a promising outlook for personal-finance investments, with the company's EPS projected to grow at a compound annual rate of 12.1% in the past five years.
- Costco's financial health remains strong, with a debt-to-equity ratio of 0.21 and a current ratio of 1.02, indicating high liquidity and low leverage, making it a possible contender for long-term business investment.
- Despite the high P/E ratio, Costco fortifies its appeal as an investing option, partly due to its low-priced, high-quality goods, industry-leading sales per square foot, and strong return on invested capital of 23%.
- As technology continues to evolve and reshape the retail landscape, Costco underscores its relevance by outperforming despite the increasing popularity of online shopping, implying its long-term durability.
- Costco's membership-based model allows it to provide competitive pricing on merchandise, boosting its appeal for lifestyle choices, and generating significant revenue, with $62 billion in merchandise sales during fiscal Q3.
- In addition to its traditionally low-priced merchandise, Costco also occasionally approves sizable special dividends, as seen in the $15 per share distribution in January 2024, offering another glimpse of its potential as an attractive investment opportunity within the broader financial landscape.
These facts highlight the myriad reasons investors may consider Costco as a viable option, considering its consistent growth and positive forecasts for the future. However, it's essential to keep in mind that its high P/E ratio reflects a premium valuation which requires careful thought when weighing investment choices against the market average and other potential financial decisions, including entertainment, sports, and shopping expenditures.
