Costco (COST +1.11%) has historically been a wonderful investment. Shares have significantly outperformed the S&P 500 in the past three decades. But that track record hasn't held up recently, with the retail stock dropping 14% in the past 12 months (as of Dec. 16). The index is up double digits at the same time.
Where will Costco be one year from now?
Image source: Getty Images.
Valuation matters more in the short run
Over a shorter time horizon, market sentiment has the biggest impact on stock prices. This is reflected in valuation. Costco doesn't look cheap, as it trades at a price-to-earnings (P/E) ratio of 45.8, in line with the trailing five-year average. That has come down considerably since the start of this year, though.
NASDAQ: COST
Key Data Points
Costco is a superb business
This valuation looks pricey, but it's worth highlighting that the market typically rewards Costco with an elevated P/E multiple. That's because the investment community understands that this is an exceptional business.
Costco constantly posts same-store sales growth, regardless of economic conditions. It has an extremely loyal customer base. And its scale provides it with a major cost advantage, allowing it to sell merchandise at low prices. Plus, new store growth indicates opportunity ahead.
The stock is about to finish 2025 with a loss. Looking at the next 12 months, I expect the market to once again appreciate the company's dominant industry position and solid financial results. I wouldn't be surprised to see Costco shares post a double-digit gain in 2026.
