Shares of Costco Wholesale (COST 0.65%) jumped 38.8% in 2024, according to data from S&P Global Market Intelligence. The famous membership-based retailer had another solid year opening new stores and growing its footprint in the e-commerce market. Now one of the largest companies in the world with a market cap of over $400 billion, Costco is firing on all cylinders and generating annual sales of $260 billion.
Here’s why the stock was higher yet again in 2024.
Dominant retail model
Costco’s retail model gives it a dominant and reinforcing competitive position. With membership-based pricing and bargain prices on bulk items, more and more people around the world are becoming habitual Costco shoppers. Last quarter, Costco’s revenue in the fourth quarter (Q4) of 2024 grew 5.7% year over year to $94 billion. The United States business is still doing quite well with 6% revenue growth, which shows the amount of room Costco has to grow as it expands into new markets around the globe.
E-commerce revenue grew 17.1% in the quarter, or more than triple its overall revenue growth. In order to compete with Amazon and Walmart, Costco will need to increase its e-commerce presence in the years to come.
Costco’s stock returns also benefited from broad market growth and expansion of its price-to-earnings (P/E) multiple. The stock started the year with a P/E of 45 and finished with a P/E of approximately 54, which juices its stock returns for the year.
Is the stock a buy in 2025?
One of the best businesses in the world, Costco has historically traded at a P/E that is a premium to the market average. This is due to its consistent earnings growth and rock-solid business model.
However, the stock looks overly expensive. The P/E is close to its highest level of the last 10 years and well off its 10-year average of 36. Costco is also a much larger business today than it was 10 years ago. With $260 billion in annual sales, it will be hard for Costco to grow quickly in the years ahead. Combined with the risk of stock-price headwinds if its P/E reverts to its long-term average, I think Costco stock is a risky bet at these prices.
Costco stock has been a long-term stock market winner, and I don’t fault anyone for holding shares at nosebleed prices. But today doesn’t look like a promising buying opportunity for the membership-based retail giant.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.
