Costco Wholesale (COST -1.72%) stock is an investor favorite. It looks almost completely immune to market changes, moving up steadily regardless of the macro environment. It was one of the few stocks that didn't plunge in the 2020 crash, and the company reported some of its best growth ever for the first two years of the pandemic.
Even though that's finished, the big-box retailer is building steadily on top of its past success, and the stock continues to beat the market. As wonderful as that is for shareholders, Costco stock is trading at its highest-ever valuation. Is Costco stock still a buy for 2025?
Why everyone loves Costco
Costco has a differentiated retail business that generates loyalty, volume, and profits. It's a no-brainer business and no-brainer stock to own. Unlike most of its retail peers, Costco's stores are only open to paying members. In general, paying for the privilege of shopping in a store leads to exclusivity and targets an affluent clientele.
That's true for Costco to some degree -- you do have to have space to store all your purchases. But in Costco's case, the annual fee allows shoppers to benefit from Costco's rock-bottom pricing, and the savings make up for much more than the fee. That's how it develops loyalty. Shoppers want to get the most bang for their buck, and they also want to benefit from the low prices.
Retention rates are outstanding, with U.S. and Canada renewal rates of 92.9% in the 2024 fiscal fourth quarter (ended Sept. 1) and 90.5% worldwide. Membership households increased 7.3% over last year to 76.2 million.
Happy customers are also increasingly moving over to executive memberships. These cost twice the amount of a basic annual membership and come with two cards, as well as other perks, like some cash back. Executive members increased 9.6% over last year in Q4 to 35.4 million, accounting for 46.5% of total membership but 73.5% of sales.
Costco raised the price of a basic membership from $60 to $65 and an executive membership from $120 to $130 in September. It will release its next quarterly report, the first to include the membership fee hike, in a few weeks.
The stock also pays a dividend although the regular dividend yields a mediocre 0.46% at the current price because the stock price has soared recently. The retailer has also issued a special dividend five times, which adds quite a lot. The latest one was last year for $15, and it has paid one about every 2.5 years on average in recent years.
Looking out into the future
Costco is the third-largest retailer in the U.S. behind Walmart and Amazon, but it only has 615 U.S. stores, and it's not even in every state. Management still sees "significant runway" in opening new stores domestically, but it has even greater opportunities internationally, where it has 277 stores. It only recently entered China, where it already has seven stores, and it sees this as just the beginning in that region.
It opened 30 stores in 2024 and expects to open 29 more in 2025, so there's no shortage of growth opportunities for Costco, in addition to its reliable growth in same-store sales.
The more pressing concern for investors is valuation. Costco stock trades at a price-to-earnings (P/E) ratio of 59, its highest ever, and other valuation metrics like price-to-sales and price-to-cash flow are also elevated.
There's every reason to believe that Costco can keep up its phenomenal performance in 2025. The question is whether or not there's any upside for its stock at the current price. The average Wall Street analyst consensus price is about 3% lower than today's price.
What should investors do? If you have a long time horizon, you can buy Costco stock today and just hold through the ups and downs. But you might want to take a dollar-cost averaging strategy, or wait for a better entry point.
