Costco Wholesale (COST 0.13%) shares are slightly negative for 2025 even as the S&P 500 posts strong gains.
What gives?
There's a lot to like about the business. The membership-based wholesale retailer's sales growth remains solid, and a recent membership fee increase should help bolster profits this year.
With that said, even though the business continues to perform well, it may not be good enough to justify the stock's incredibly high valuation. Indeed, Costco commands a price-to-earnings (P/E) ratio that towers over faster-growing big tech companies like Nvidia and Apple.
Here are some of the main reasons I think shares have struggled this year.
Image source: Getty Images.
1. Sales growth isn't living up to the stock's valuation
Costco recently closed out fiscal 2025 with another solid year of growth. The company's revenue rose about 8% for both the fourth quarter and the full year. This revenue growth was helped by comparable sales (adjusted to exclude the impact of changes in foreign exchange and gas prices) increasing 6.4% and 7.6% for Q4 and full year, respectively.
While these are good numbers, there are two problems. First of all, the company's Q4 comparable store-sales growth rate is slower than the full-year growth rate, suggesting a slight slowdown. Making matters worse, Costco's November monthly sales growth was a notch softer than October. Specifically, Costco's adjusted comparable store sales rose 6.4% in November, down slightly from adjusted comparable store sales growth of 6.8% in October.
2. The stock is lacking a meaningful catalyst
A second piece of the puzzle is the timing of Costco's most important profit driver: membership fees.
After a long stretch without a fee increase, Costco raised annual dues in the U.S. and Canada late last year. It increased the base Gold Star fee by $5 and the Executive tier by $10. While that change contributed to a 14% jump in membership fees in fiscal 2025's Q4, this means that the company will be up against a tough comparison this time next year. Even more, Costco has historically boosted membership prices only about every five-and-a-half years -- and management has signaled that it treats these hikes cautiously, using them sparingly and reinvesting part of the extra income into the value of its products and richer perks instead of dropping every dollar to the bottom line. Therefore, with the latest increase just over a year old, another hike is unlikely for several more years.
In other words, Costco is unlikely to benefit from another membership fee increase for years.
3. The stock's valuation is hard to justify
All of this feeds into the main headwind: valuation.
A slight deceleration in comparable sales growth or a lack of major catalysts in the coming years wouldn't normally be a thesis breaker for a company that consistently grows and boasts competitive advantages from both scale and a loyal customer base. But the stock's high valuation unfortunately demands high standards.
NASDAQ: COST
Key Data Points
Even after the recent pullback, Costco trades at about 49 times earnings. Considering that the S&P 500 has a P/E of 25, it's easy to see why investors should demand spectacular performance from Costco.
Paying that kind of price can still work if growth reaccelerates or if margins expand meaningfully. But given the company's model, which centers around passing any savings it achieves from scale onto its customers, rapid margin expansion is unlikely. Furthermore, given how established its presence is in the U.S. and Canada, Costco would likely need a huge lift from international markets to see sales growth reaccelerate meaningfully.
With all of this said, I love Costco. I love shopping there, and I love the business model.
But I don't love the stock -- not at this price.
