Costco (COST 0.27%) just reported financial results on May 29. Revenue totaled $63.2 billion, while diluted earnings per share (EPS) came in at $4.28. Both these headline figures exceeded Wall Street estimates. Shares are up 4% since the news (as of June 2), helping drive a 14% gain so far in 2025.
Costco dominates the retail landscape. And it has certainly generated sizable wealth for some of its very early investors. But could buying this retail stock right now make you a millionaire one day?
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Costco's momentum
Costco once again showed that its business is largely unscathed from the uncertain macro environment. Same-store sales climbed 5.7% in Q3. This was mostly driven by robust growth in foot traffic. E-commerce comparable sales soared 14.8%, with strong demand for items like jewelry, home furnishings, and apparel.
Like other retailers, Costco is navigating the uncertain tariff situation. The leadership team has raised prices on some goods, while leaving other items untouched. Moreover, Costco has been working on adjusting its supply chain to minimize the impact of higher costs and to find any efficiencies.
Having such a big presence in terms of selling groceries and gas, for example, can protect Costco when consumers feel pressure from the economic situation. These are essential items that households need, regardless of what's happening. Always being viewed as a top shopping destination helps the business.
Costco's staying power
It's important for investors to understand the competitive landscape that businesses must deal with. Companies with durable competitive advantages are the ones that should stand the test of time. Viewed in this light, it's clear Costco possesses an economic moat.
The business has tremendous scale, as demonstrated by the $62 billion in merchandise sales it reported in Q3. Given that the typical Costco warehouse has just 4,000 stock-keeping units for sale, much lower than the average supermarket, the company is perhaps the largest buyer for the goods that it acquires from suppliers. Consequently, Costco has incredible negotiating leverage.
These cost savings are passed to consumers in the form of everyday low prices. There's a positive feedback loop at play that has and will continue to power Costco forward. And because shoppers have come to expect a superior experience, Costco has unrivaled brand recognition in the industry.
Technology impacts all markets. And with the rise of online shopping in the past couple decades, the retail sector isn't immune. Amazon has arguably been Costco's biggest threat in recent memory. But even with its popular Prime membership program winning over consumers, Costco has continued to grow its membership base, with a strong worldwide renewal rate of 90.2%.
People still love to shop in person. Investors should gain confidence by Costco's ongoing success.
Costco's forward returns
In the past 35 years, shares of Costco have produced a monster total return of 8,020%. This means a $12,400 investment made back in June 1990 would be worth a cool $1 million today. Is it possible that something similar can happen again in the future?
Investors should focus on two key factors that can impact the stock's performance. The first is EPS, which is expected to grow at a compound annual rate of 11.3% between fiscal 2024 and fiscal 2027, according to Wall Street consensus analyst estimates. That's not too exciting, which is understandable, given how big Costco's operation is nowadays.
Another variable to consider is the valuation. As of June 2, Costco shares trade at a nosebleed price-to-earnings ratio of 60.7. This is extremely expensive, and probably the only reason investors should avoid buying the stock. The valuation showcases how much love the market has for Costco.
This is an outstanding business. However, I don't believe Costco will make you a millionaire one day.
