Is Costco Stock Worth Buying Now or Too Pricey to Touch?

Core Insights - Costco Wholesale Corporation (COST) is trading at a forward 12-month price-to-earnings (P/E) multiple of 50, which is above the industry average of 33.02 and the S&P 500's 22.62, indicating a premium valuation [1][2] - Despite this premium, Costco's stock has increased by 8.2% year-to-date, outperforming the industry average rise of 6.9% [5][6] - Membership renewal rates are strong at 92.7% in the U.S. and Canada, contributing to Costco's robust business model [8][9] Valuation and Performance - Costco's current P/E is slightly below its 12-month median of 50.74, suggesting it is relatively cheaper than its recent historical average [1] - Compared to peers, Ross Stores trades at a P/E of 22.72, Dollar General at 18.92, and Target at 13.50, highlighting Costco's premium positioning [2] - E-commerce sales grew by 14.8% in Q3, supported by improved logistics and a new Buy Now Pay Later option [8][11] Membership and Revenue Growth - The company has 79.6 million paid household members, a 6.8% increase year-over-year, with executive memberships growing by 9% [10] - Membership fee income rose by 10.4%, aided by a recent fee hike, contributing approximately 4.6% growth in the quarter [10] - Costco's private-label brand, Kirkland Signature, saw sales growth outpacing overall company growth, with penetration increasing by 50 basis points year-over-year [12] Competitive Landscape - Costco faces increasing competition from rivals like Ross Stores, Dollar General, and Target, which are enhancing their capabilities [13] - Margins are a critical area to monitor, with potential concerns related to selling, general, and administrative expenses, as well as foreign exchange volatility [14] Consensus Estimates - The Zacks Consensus Estimate for the current fiscal year remains stable at $17.97, while the next fiscal year's estimate has decreased slightly to $19.92 [15][17] - Expected year-over-year growth rates are 11.6% for the current fiscal year and 10.9% for the next [17] Investment Outlook - Costco's strong fundamentals and market leadership support its long-term investment case, but its premium valuation suggests a cautious approach [18] - The recommendation is to hold existing positions rather than pursue new investments at current high valuations [18]