Costco Wholesale Corporation's stock has recently experienced a period of stagnant growth, trading horizontally following a substantial surge in late 2023 and early 2024. This pattern echoes historical trends observed between the first halves of 2021 and 2023. Concurrently, the stock's premium valuation has moderated, with its price-to-earnings ratio decreasing from 58x in February 2025 to 46x. However, this figure still remains notably higher than its ten-year average of 35x.
The competitive landscape within the warehouse club and e-commerce sectors is intensifying. Direct competitors are reporting robust membership revenue growth and healthier profit margins, indicating a tightening market. This increased competition puts pressure on Costco to maintain its market position and growth trajectory.
Considering these factors, particularly without a significant acceleration in its adjusted earnings per share (EPS) growth—ideally in the high double-digit range—the author believes that Costco's stock remains overvalued. This assessment holds true despite the recent market downturn.
Looking ahead, while there is a possibility of a special dividend announcement in the upcoming first fiscal quarter of 2026 earnings call, the overall outlook for investor returns remains uncertain. The current elevated valuation levels suggest that future gains may be limited.
In essence, while Costco continues to be a popular retailer, its recent stock performance and valuation metrics warrant careful consideration. The market's immense rally for Costco's stock in the latter half of 2023 and early 2024 led to an expected period of sideways trading, aligning with past market behavior. The company's valuation, though slightly reduced, still indicates a premium compared to historical averages and industry peers. This situation, combined with growing competition, suggests that investors should approach Costco's stock with caution, focusing on fundamental growth rather than speculative gains or the promise of special dividends.