You can break investing into two areas: Value and growth stocks. For those interested in growth stocks, they have outperformed value stocks this year. The Russell 3000 Growth Index returned 18.8% in 2025 (through Dec. 3), besting the Russell 3000 Value Index by about 3.6 percentage points.
When looking ahead, there's one growth stock that stands out. While generative artificial intelligence stocks get a lot of attention right now, discount retailer Costco (COST 0.88%) remains my favorite growth stock.
It's time to learn more about the company and its long-term prospects.
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Strong business
Most people recognize Costco for its huge warehouses, outsize product sizes, and broad range of goods and services offered. The underlying business concept remains simple, but management executes it extremely well.
It offers high-quality merchandise and attractive unit prices, and it charges members an annual fee to shop at its warehouses. This combo provides a robust but low-margin revenue base from the retail operations, and rich operating profits from the membership program. Those annual fees carry minimal costs, so the renewable revenue drops straight down to the bottom line.
Members continue to find value in having Costco memberships. Renewal rates consistently hover at around 90%, including 89.8% last year. It also continues to add paid members. For the fiscal period that ended on Aug. 31, paid memberships were 81 million, up from 76.2 million at the end of the previous year.
Impressively, the high retention rates and membership growth came as management implemented a fee increase in September 2024 for the first time in several years. Clearly, at a time when people feel financially strained by high prices, they are willing to pay more to shop at Costco.
They're clearly drawn to Costco's value pricing. While other retailers struggle to grow sales, Costco's same-store sales (comps), excluding gas sales, jumped 16.1% last year.
The company keeps an eye on profitability, too. Costco's operating income grew 11.8% to $10.4 billion.
Growth ahead
Costco's not a mature company, either. It still has plenty of room to expand. Management has been opening more than 20 warehouses per year, including 24 last year. It's a good, steady pace.
Of its 914 warehouses, 629 are located in the U.S. It also has locations in places like Canada, Mexico, Japan, Australia, and China.
Given Costco's business model, it has appeal around the globe. That means the company has plenty of expansion opportunities, which should continue to drive sales and profit growth.
The valuation
Unsurprisingly, given Costco's earnings growth, its shares have historically rewarded shareholders over the long term. Over the last five years through Dec. 4, the stock produced a total return of 153.4%, easily besting the S&P 500 index's 99.5%.
NASDAQ: COST
Key Data Points
With strong results and bright growth prospects, Costco's shares don't trade at a cheap valuation. The stock has a price-to-earnings (P/E) ratio of 49, higher than the 10-year median of 36. The shares also trade at a more expensive valuation than the S&P 500, which has a P/E multiple of 31.
However, paying a higher valuation doesn't bother me, since Costco has executed well and has plenty of room to grow. That should continue to push profit growth.
While $1,000 will only get you about 1 share of Costco, you can build a bigger position by investing small amounts over time. One way to accomplish this is through dollar-cost averaging. This involves investing the same amount at regular intervals (say, quarterly). That way, your purchase price gets smoothed out over time, and you'll build a bigger position in this strong, growing company.
