Costco (COST) Stock is in a Downtrend, But the Shares Are Still Expensive Here

Stock (Symbol)

Costco (COST)

Stock Price

$855

Sector

Data is as of

Expected to Report

Company Description

Costco Wholesale Corporation is a global retailer with warehouse club operations in eight countries.

The Company operates an international chain of membership warehouses, mainly under the Costco Wholesale name.

The Company’s warehouses are designed to help small- to medium-sized businesses reduce costs in purchasing for resale and for everyday business use.

The Company offers merchandise in various categories, which include groceries, candy, appliances, television and media, automotive supplies, tires, toys, hardware, sporting goods, jewelry, watches, cameras, books, housewares, apparel, health and beauty aids, furniture, office supplies and office equipment. Members can also shop for private label Kirkland Signature products.

It operates approximately 923 warehouses worldwide. It also operates self-service gasoline stations. The Company operates e-commerce websites in the United States, Canada, Mexico, United Kingdom, Korea, Taiwan, Japan, and Australia. Source: Refinitiv

Sharek’s Take

Costco is the 2nd largest global retailer with more than 130 million members. The company began operations in 1983 in Seattle, Washington. In 1993, the company merged with Price Club, which pioneered the membership warehouse concept in 1976 (and was a hot stock during its early years). It ended Fiscal 2025 with 914 locations worldwide, including 629 in the US or 69% and 31% Internationally (Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland and New Zealand). The company opens around 20 to 30 locations annually. Costco also runs e-commerce websites in the United States, Canada, United Kingdom, Mexico, South Korea, Taiwan, Japan, and Australia. The profit Costco makes is mostly made up of the annual membership fees it brings in. In Fiscal 2025, COST had retail sales of $269.9 billion, membership fees of $5.3 billion, and net income of $8.1 billion.

Here are some stats from the last qtr:

• Profit growth of 11% on 8% sales growth, year-over-year.
• Same-store sales increased 6%, including 6% in the US, 9% in Canada and 7% in other International markets.
• Digitally enabled comparable sales were up 21%.
• Traffic or shopping frequency increased 3% worldwide.
• Average transaction size was up 3% worldwide.
• Total cardholders were 145.9 million, up 5% year over year.
• Membership fee income rose 14%.
• Membership renewal rate was 90% worldwide, and 92% for both US and Canada.

Costco is one of the world’s safest stocks, but it’s basically a 10% to 12% grower with a lofty P/E. Analysts give the stock an Estimated Long Term Growth Rate (Est. LTG) of 13% per year and the stock yields around 1% per year. Management buys back stock, pays a quarterly dividend, and has also paid occasional one-time dividends. The big issue with this stock is its expensive. I sold Costco from the Conservative Growth Portfolio in January 2024 because I felt P/E was too high at 41. This quarter it’s 46. So COST is on the radar and if the stock drops some more, I’ll likely buy in.

One Year Chart

The P/E of 46 is high. My Fair Value is a 37 P/E. I think the stock is worth $753. It’s $855 this qtr. 

The Est. LTG was 9% last quarter and is 13% this quarter. Nice!

Profit growth has been 11% the past two quarters, and its expected to accelerate to 12% and 14% the next 2 qrts.

Earnings Table

• Fresh category comparable sales grew high-single digits, led by double-digit growth in meat and strong performance in beef and poultry.
• Bakery have comparable sales in the high-single digits driven by the introduction of new items such as holiday dessert bars and Creme Brulee Bar Cake.
• Costco launched around 45 new Kirkland Signature (KS) items, including dry facial daily clean towels, caramelized blueberry croissants, caramel brownie sundae and various apparel items.
• Costco had 39.7 million paid Executive memberships, up 9% year over year.
• Costco opened eight new warehouses—including a relocation in Canada, a third warehouse in France, four net new U.S. locations, and two additional Canadian business centers—bringing its total warehouse count to 923.

Annual Profit Estimates increased somewhat.

Qtrly Profit Estimates are 12%, 14%, and 9% and 7% for the next 4 qtrs. Analysts believe COST revenue will grow by 8% next quarter.

Fair Value

Costco’s P/E had risen steadily during the past decade. I think the P/E is too high now.

The stock has a 46 P/E this qtr, and my Fair Value P/E is 37.

At the current price of $855, and a Fair Value of $753 a share, the stock is 12% overvalued in my opinion.

The company has a Fiscal Year end on August 31.

Bottom Line

Costco (COST) is a quality Blue Chip stock with high certainty, a stock buyback program, qtrly dividends and a history of big surprise dividends. This has been a steady winner for many decades, thus investors really appreciate the stock.

Costco needs to continue to digest its prior gains. The stock still seems too high in my opinion.

COST is on the radar for the Conservative Portfolio.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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