Is Costco a Buy, Sell, or Hold in 2025?

Costco is well-loved by both its customers and investors, yet the company’s stock trades at a high valuation.

As the economy faces challenges, investors often turn to resilient companies. Few fit this description better than Costco Wholesale (COST), which benefits from a loyal base of cost-conscious members.

The global retailer recently shared its latest earnings report, providing new insights into its financial status. Let’s take a closer look at these results, the history of its dividends, and how it’s valued in order to assess whether the stock is a buy, sell, or hold as we look towards 2025.

Costco’s Membership Growth and Sales

In its most recent quarter (fiscal Q2 2025), Costco achieved $62.5 billion in revenue and $1.8 billion in net income, reflecting year-over-year growth of 9.1% for revenue and 2.6% for net income. The company concluded the quarter with 78.4 million paid household members, marking a 6.8% increase from last year, alongside 140.6 million cardholders, up 6.6% year-over-year.

These results came after a membership fee increase in September 2024, where fees for U.S. and Canadian members rose by $5 to $65 for Gold Star and Business memberships, and $10 for Executive Memberships, bringing them from $120 to $130.

Management stated that about 3% of their quarter's membership fee revenue—totaling $1.2 billion—can be attributed to this fee adjustment, with expectations for the full effects to show over the upcoming four fiscal quarters.

Costco’s Increasing Dividend

With ongoing growth in revenue and net income, Costco has also established itself as a dependable dividend-paying stock. While its annual dividend yield may stand at a modest 0.5%, the company has continuously paid and raised its dividend for 20 years straight. If trends hold, an announcement regarding a dividend increase to the current quarterly payout of $1.16 per share can likely be expected in April.

Additionally, Costco has a notable history of distributing special cash dividends, with five such distributions made over the last 13 years, the latest being $15 per share, paid in January 2024.

This ability to pay dividends stems from its low payout ratio of 20.3%, which is significantly below the 75% threshold that often raises concerns about dividend sustainability. Costco also maintains a debt-free status with $7.4 billion in net cash, allowing it to earn interest on its holdings rather than incurring costs from interest payments like many competitors do.

These factors suggest that Costco is likely to continue its dividend growth and possibly offer special dividends in the years ahead.

High Valuation of Costco Stock

The late Charlie Munger, former vice chairman of Berkshire Hathaway and longtime Costco board member, referred to Costco as a "perfect" company, with the only drawback being its high valuation. Presently, Costco's stock trades at a price-to-earnings (P/E) ratio of 52.1, based on its trailing earnings.

To assess this valuation, it’s helpful to compare Costco’s P/E ratio with its peers and its own historical averages. For instance, Target and Walmart hold P/E ratios of 11.8 and 35.1, respectively. Costco’s favorable cash position is a vital aspect, as Target and Walmart have net debts of $11.2 billion and $30 billion respectively.

As of the end of 2024, Costco operated 897 warehouses, with 69% located in the United States. The company aims to open 25 to 30 new warehouses each year, targeting international markets such as Canada, Mexico, Asia, and Europe.

Investor Recommendations on Costco Stock

Although Costco's elevated valuation warrants attention, it should not deter investors, particularly in a shaky economy where this discount warehouse retailer tends to thrive. CEO Ron Vachris emphasized the company’s value proposition, stating, "In uncertain times, our members have historically placed even greater importance on the value of high-quality items at great prices. Our teams will continue to tackle challenges by leveraging our global buying power, robust supplier relationships, and continuous innovation."

This strategy is evidently effective, as membership renewal rates remain stable at 93% in the U.S. and Canada and 90.5% globally. Considering its strong fundamentals and reliable dividend record, Costco appears to be a hold for long-term investors, even in light of its relatively high stock price.

Costco, Investors, Dividends