Costco , known for its in-store bargains, doesn’t quite have a cheap stock. But its premium valuation — and place as a core holding in our investment portfolio — is more than warranted. We don’t expect either fact to change in 2025. Year-to-date performance: up 38.8% Forward price-to-earnings multiple: 49 versus a five-year average of 37.9 Our rating: Hold-equivalent 2 Our price target: $1,100 a share COST 1Y mountain Costco latest 12 months performance ’24 look back Costco stock exceeded expectations again in 2024, with shares surging nearly 39% — blowing past the S & P 500 ‘s impressive 23% advance last year. Costco also outperformed the market in 2023 — logging a 44% increase. The membership-only retailer gained market share last year along with heavyweights like Walmart and Amazon by excelling in both consumer staples and discretionary categories. Driving success was a sharp focus on delivering value and newness, which kept customer traffic strong and membership counts climbing. Costco’s private label, Kirkland Signature, grew faster than national brands, solidifying its reputation for quality at favorable prices. The retailer also made strides online, with e-commerce traffic growing steadily and digital tools like the Costco app, now downloaded 42 million times, enhancing the customer experience. ’25 look ahead Costco heads into 2025 with several promising growth drivers. Aside from its traditional approach to growing headline earnings and sales, the company is expanding its alternative revenue streams, particularly through its budding retail media business. The goal here is to capture advertising dollars from brands eager to tap into Costco’s loyal customer base. E-commerce and logistics are two other growth areas. The recent membership fee increase, which went into effect in September, is another potential catalyst since it should drive fee income higher in the quarters ahead. Costco likes to reinvest those additional dollars back into the business to keep prices low, which adds to its appeal as a place to shop. A risk to watch, though, is whether Costco’s membership renewal rates decline — whether that’s because some members bail due to higher pricing or people who initially signed up online decide to cancel. Executives have flagged that members acquired digitally tend to renew at lower rates, and some pressure from that dynamic is already afoot. To be sure, Costco ended its most recent quarter with 77.4 million paid members, up 7.6% from the year-ago period. Renewal rates can have an impact on Costco’s margins and expansion plans, especially since new store openings are closely tied to the success of existing locations. On the expansion front, Costco plans to open more stores globally, with over half of the new locations in the U.S., reflecting confidence in the ability to add more scale in its home market. “They could use, I don’t know, maybe triple the number of Costcos there are right now around the globe? Maybe more?”…
Read More: Costco has the tools to show its expensive stock is still worth the premium
