Finding investment ideas doesn't have to be complicated. Investors can start by looking around and identifying companies that they are customers of. There are numerous businesses out there that have a strong market presence.
Take Costco Wholesale (COST 0.16%). With a market cap of $430 billion and third-quarter 2025 net sales of $62 billion, it is one of the largest consumer goods companies on the face of the planet. And it has been a monster winner for shareholders, producing a total return of 16,390% in the last 30 years (as of July 15). But is the retail stock a buy right now?
Image source: Getty Images.
Costco's business is humming along
This year hasn't been an easy one to navigate for most companies. Inflation that remains persistently above the Federal Reserve's 2% target, trade uncertainties, and falling consumer confidence are things businesses must deal with. Retailers generally are having a tough time.
In typical fashion, Costco stands out from the crowd. It continues to register solid financial results no matter what the macro environment looks like. Same-store sales increased by at least 7% in each of the last three fiscal quarters, thanks to a combination of more foot traffic and higher average ticket spend.
Despite its scale, Costco keeps pushing for more expansion. The plan is to open 24 net new warehouses this fiscal year, which ends sometime near the end of August. Looking at the long term, the leadership team is aiming to open 25 to 30 new stores per year, with lots of opportunity both in the U.S. and internationally.
Costco succeeds in a competitive industry
The retail sector is arguably the most competitive market on Earth. Think about it from a shopper's perspective. There are numerous choices of where to spend money, with no switching costs. Products are generally commoditized, with price being a big decision-making factor. And margins are super thin.
For physical retailers, Amazon has also been the 800-pound gorilla that keeps executives up at night. Customers love the low prices, vast selection, and fast and free shipping. It's hard to compete with this. But Costco has continued to thrive in the face of the e-commerce juggernaut's success, which shows just how much people appreciate the shopping experience it provides.
I have confidence Costco is not going to be disrupted or become irrelevant anytime soon, if ever. It's able to buy merchandise for its warehouses at attractive prices thanks to its tremendous scale advantage. This allows the company to consistently maintain low prices for consumers. And it has a strong brand in the retail industry that people have come to love.
A lucrative business model is to collect a recurring revenue stream. This isn't a common theme across retailers. But again, Costco stands out. Its shoppers must pay annual fees to become members to visit its warehouses. This not only creates high-margin revenue, totaling $1.2 billion in Q3, but it also drives loyalty from shoppers. As of May 11, 79.6 million households globally were Costco members, up 6.8% year over year.
Costco stock doesn't sell on the discount rack
Any investor who takes the time to study Costco will come away impressed. This is a high-quality business. And its track record of compounding shareholder capital speaks for itself.
The current setup isn't favorable at all, though. As of July 15, the stock can be bought at a price-to-earnings ratio of 55. The valuation has rarely been this expensive this century. The takeaway is that the investment community completely understands Costco's merits.
Looking five or 10 years down the road, I believe there's a higher probability that Costco's valuation multiple declines than expands. Even though the company is likely to keep putting up solid financial results for the foreseeable future, it doesn't mean new investors will reap the rewards.
