It seems no matter what time frame you use, shares of Costco Wholesale (COST -5.11%) outperform the broader market. The business has been a huge winner over the long term. And even in the past 12 months, it's generated a total return of 33%, ahead of the S&P 500's 9%.
This top retail stock is now taking a breather along with the rest of the market, trading 10% below its record. Investors who have been watching from the sidelines might be ready to scoop up shares. Where will Costco be in one year?
As steady as they come
Investors are worried about the state of the economy. Inflation remains above the Federal Reserve's 2% target. Credit card debt is at an all-time high. There's ongoing uncertainty surrounding tariffs. And consumer confidence continues to decline. As a result, many people fear a recession happening in the near term.
But Costco stands out among investments, as its financial performance reveals a business that keeps plowing along. In its second quarter of fiscal 2025 (which ended Feb. 16), net sales increased by a solid 9.1%, driven by a same-store sales gain of 6.8% that was mostly supported by higher foot traffic. Top-line growth has actually picked up in two straight quarters.
Demand was strong across the board. "For the quarter overall, gold and jewelry, gift cards, toys, housewares, appliances, sporting goods, home furnishings, and small electrics were all up double digits," said CFO Gary Millerchip on the Q2 2025 earnings call.
Customers show loyalty to the Costco brand. This is supported by a membership model, in which people pay annual fees for the right to shop at the company's warehouses. Even in these uncertain times, the membership base expanded 6.8% in Q2 on a year-over-year basis, with a stellar 93% renewal rate in the U.S. and Canada.
Technology continues to disrupt industries. But Costco is undoubtedly one of the most durable companies on the face of the planet. The rise of online shopping, particularly with the popularity of Amazon's Prime membership, hasn't gotten in the way of Costco's steady growth trajectory. Its diluted earnings per share (EPS) increased at a compound annual rate of 11.5% over the past decade.
NASDAQ: COST
Key Data Points
Costco's 12-month outlook
Highly educated and highly paid Wall Street economists and strategists are always trying to make predictions about the direction of the markets or the broader economy over the next year. But they're all just guessing; the truth is that no one really knows. It's all unpredictable, as there is an unlimited number of variables that can have an impact.
From a business perspective, I think Costco should do well over the next year. By selling everything a household needs -- from gas and groceries to clothing and medicine -- at extremely low prices, the retailer seems recession-resistant.
This is an all-weather business. The beauty is that shareholders don't need to make accurate forecasts. Costco will be fine no matter what macro environment we find ourselves in over the course of the next year.
It's harder to forecast the stock's performance over the next 12 months, though. One reason to be optimistic is Costco's track record: It's trounced the market over the last one-, three-, five-, 10-, and 20-year periods. And the latest drop could be a good setup for the stock to go on another run.
But I take a more pessimistic view. I believe shares remain overvalued. They trade at a price-to-earnings ratio of 56.3, which is extremely expensive for a company that put up EPS growth of 16.9% in fiscal 2024, and has a consensus forecast for a 12.2% gain in the current fiscal year. The valuation reflects no room for error.
The stock could be higher a year from now. However, I think there's a likelihood that it underperforms the S&P 500.
