Key Points Costco’s stock underperformed the market in 2025. Its high valuations and low yield are limiting its upside potential. Its near-term gains could be limited, but it’s still a solid long-term investment. 10 stocks we like better than Costco Wholesale › Costco (NASDAQ: COST), the world's largest warehouse club retailer, is often considered a stable blue chip stock. Yet over the past 12 months, its stock declined by more than 10% as the S&P 500 rose 16%. It has also pulled back nearly 20% a ...

Core Insights - Costco reported a revenue increase of 8% year over year to $86.2 billion for Q4 fiscal 2025, surpassing analysts' expectations by $100 million, with earnings per share rising 11% to $5.87, exceeding consensus by $0.06 [1][2][7] Financial Performance - The adjusted comparable sales growth for Costco has shown a consistent upward trend: 9.2% in FY 2020, 13.4% in FY 2021, 10.6% in FY 2022, 5.2% in FY 2023, 5.9% in FY 2024, and 7.6% in FY 2025 [6] - Total warehouses increased from 795 in FY 2020 to 914 in FY 2025, while total cardholders grew from 105.5 million to 140.6 million in the same period [6] - The global renewal rate has remained stable, increasing from 88% in FY 2020 to 90.5% in FY 2025 [6] Business Model and Strategy - Costco's profitability is primarily driven by high-margin membership fees, allowing it to sell products at low margins [4] - The company maintains a narrower product range compared to competitors like Walmart, focusing on private label products to differentiate itself [5] - Ancillary services such as food courts and gas stations enhance membership stickiness and contribute to growth [5] Market Context - Costco experienced growth during the COVID-19 pandemic and inflationary periods, attracting more cost-conscious consumers [8] - The company successfully raised membership fees for the first time in seven years without negatively impacting renewal rates or membership growth [8]

Core Insights - Costco reported Q4 earnings of $5.87 per share, an 11% year-over-year increase, with revenue of $86.2 billion, up 8%, surpassing expectations [2] - U.S. comparable sales rose by 5.1%, outperforming Walmart's 4.6% and significantly exceeding Target's 1.9% decline, indicating strong member spending and traffic [2] - Digital sales grew by 13.6% in Q4, and membership income increased by 14% to $1.7 billion, showcasing the effectiveness of its subscription model [2] Financial Performance - Annual top-line growth averaged 7.3% over the last three years, with revenues increasing by 8.1% to $275 billion in the past twelve months [5] - Operating income was approximately $10 billion, with an operating margin of 3.8% and a cash flow margin of 4.6%, generating nearly $12 billion in operating cash flow [6] - Net income reached $8 billion, yielding a net margin of 2.9%, demonstrating Costco's ability to convert growth into profitability [6] Business Model and Strategy - Costco operates 914 warehouses globally, including 629 in the U.S., maintaining pricing advantages through low margins and the effectiveness of its private label brand, Kirkland Signature [7] - Shopping frequency increased by 3.7% in Q4, while the average ticket rose by 2.6%, indicating growth driven by traffic rather than price increases [7] - The flexible supply chain reduces risks from tariffs and global sourcing, with two-thirds of merchandise procured domestically [8] Valuation and Market Position - Costco is trading at 52x earnings and 57x free cash flow, indicating a low cash flow yield of 1.8%, which is high compared to competitors like Amazon [4] - The company's high valuation may not align with its fundamentals, as revenue growth is solid but not extraordinary, and the pace of store expansion is slowing [9] - If comparable sales continue to decelerate, investor confidence and Costco's valuation multiple could face pressure [9]