Costco Wholesale (COST -0.42%) stock has been a reliable market beater for decades, outperforming the S&P 500 by a wide margin. However, that's changed this year. The S&P 500 is soaring again, up nearly 15% year to date, while Costco stock is roughly flat.
Are the good times over for Costco shareholders? Or can it roar back to life next year and offer more value for investors? Let's see what's happening at Costco.
COST Total Return Level data by YCharts.
The resilient membership model
At first glance, Costco stock's waning performance seems curious, because the retailing giant has been demonstrating phenomenal results. Let's take a look at fiscal 2025 fourth-quarter (ended Aug. 31) highlights, which are fairly typical:
- Sales increased 8% year over year
- Comparable sales increased 5.7%
- E-commerce sales increased 13.6%
- Earnings per share (EPS) were up from $5.29 last year to $5.87 this year
Membership metrics have been equally strong. The worldwide renewal rate was 89.8%, while in the U.S. and Canada it was 92.3%. Paid memberships were up 6.3% over last year, and membership income was up 14%.
Costco's membership model lends itself to loyalty and high sales volume, as well as a recurring revenue stream. It tends to do well in any environment, and often does even better when there's economic pressure, since its stores typically have the cheapest prices around.
Image source: Getty Images.
The premium price
So why is Costco stock trailing the market right now?
One of the issues with Costco stock is that it has become extremely expensive over the past few years. It has always traded at a premium to other retail stocks, but as the price has increased, so has the valuation. At the current price, Costco stock trades at a price-to-earnings (P/E) ratio of 51. That's come down from higher than 60, but it's still well above the five-year average of 45. At that price, it can't afford too many missteps.
While performance continues to be outstanding, there are some worries on investors' minds. One is that global renewals are slightly lower than usual. Management attributed that to more online signups, a newer initiative that's been coming with a lower renewal rate. The flip side is that it captures more younger shoppers. The average age of a new signup is under 40, providing years of more renewal potential.
There's also still uncertainty related to tariffs, which have been affecting many retailers.
NASDAQ: COST
Key Data Points
Gearing up for a new year
Altogether, there's a lot to like, or even love, about Costco. It's managing through a challenging period beautifully, even if there are some near-term issues. It's unlikely that Costco stock is going to skyrocket before the end of the year, but things can easily change next year. Tariffs, and the reactions to them, are likely to be more settled, although it might take more time to see what's happening with the renewal rates.
Costco is in more of a state of flux than it usually is as it gets more into e-commerce and digital, and for the most part, it's benefiting from the digital changes. E-commerce has been a tremendous growth driver recently, and Costco is leveraging it in ways that fit its model, like curbside pickup for large and bulky items. The option for signing up online is likely to ultimately be positive for the company, since it gives the company greater exposure to a younger, digital-first cohort of customers.
As it gets closer to the end of 2025 with Costco stock having a rare market underperformance, it's more likely that it will rebound in 2026. However, short-term movements aside, Costco is likely to reward investors for many years down the road.
