Costco (COST +0.64%) is one of the world's biggest retailers, bringing in $270 billion in net sales in fiscal 2025 (ended Aug. 31). Its shares have worked out very well for investors, generating a trailing-five-year total return of 159% (as of Nov. 18). However, they're 17% off their peak.
If you're looking to buy this retail stock on the dip, take the time to know these three things first.
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1. Memberships drive customer loyalty
Like any other retailer, Costco sells goods via its physical stores. Products fall into a wide range of categories. The business generates a very low gross margin on its merchandise sales. This isn't exciting.
What separates Costco in the industry is its lucrative membership model. Customers must pay annual fees for the right to shop at Costco warehouses. The basic plan costs at $65 per year. There are 81 million membership households worldwide, a figure that climbed 6.3% year over year in Q4 2025.
These memberships can help drive customer loyalty and repeat visits to warehouses. Customers who have spent the annual fee will be inclined to direct more of their shopping to Costco in an effort to make the investment worth it. The global renewal rate typically sits at around 90%.
2. Same-store sales continue to climb higher
Same-store sales (SSS) are a critical metric for Costco. In fiscal 2025, they rose 5.9%, continuing a streak of ongoing growth. That consistency is notable.
The company's ability to increase SSS in seemingly any economic environment points to just how steady the operations are and how durable demand from shoppers is. Costco's focus on selling high-quality merchandise at the lowest prices around is a strategic priority that works well, no matter which way macroeconomic forces are trending. Consequently, some investors might view this as a safe business to own.
NASDAQ: COST
Key Data Points
3. Costco stock trades at an expensive valuation
Most investors would agree that Costco is a wonderful business. However, this doesn't mean it automatically deserves a spot in your portfolio.
Investors have to take valuation into account. Pay too high of a price, and returns could suffer. Costco shares are expensive, trading at a price-to-earnings (P/E) ratio of 49.2.
To be fair, it seems that Costco is always trading at an elevated P/E multiple. This might imply that the market will constantly reward the business with a premium valuation, which could be justified given its long history of success. However, this leaves no margin of safety. And there's a good chance that the P/E ratio will contract in the future as the company becomes more mature.
