Costco's soaring stock faces scrutiny as analysts urge patience
Costco's stock has climbed roughly 15% this year, despite a recent dip in price. The retail giant's sales growth remains steady, with January figures up 9% compared to last year. Yet some analysts suggest investors should wait for a better entry point before buying shares.
The company's latest sales report showed strong demand for high-value items like jewellery and appliances. This boosted overall performance, though total net sales growth stayed in single digits—8% in the fiscal first quarter and 9% in January.
Costco's shares currently trade at a price-to-earnings (P/E) ratio of 53, dropping slightly to 49 when using forward earnings estimates. This makes it one of the more expensive salesforce in the market. Over the past three years, earnings per share grew at an annualised rate of 11%, but analysts expect long-term growth to slow to around 9%.
By comparison, none of the so-called Magnificent Seven tech firms—including Microsoft, Nvidia, and Meta—carry such high valuations. Microsoft, for example, trades at 22 times forward earnings, similar to the broader market. Its cloud division, Azure, reported 39% year-over-year growth, justifying a premium. Nvidia and Meta also benefit from strong demand in AI and digital advertising, areas where Costco's membership-based retail model doesn't compete.
Other major companies, from consumer staples to tech giants, now offer better value relative to their earnings growth. This has led some investors to watch Costco closely but hold off on buying until its valuation becomes more attractive.
Costco's stock price reflects expectations of stronger earnings growth than it currently delivers. With a P/E ratio well above peers and modest sales increases, caution may be wise. Investors could find better opportunities elsewhere—or wait for a pullback before adding shares.
