Up 15% This Year, Is Costco Stock a Buy?

Costco reported continued momentum with January retail sales up 9.3% year‑over‑year and same‑store sales rising 7.1% (6.4% ex‑gasoline and FX), while digitally enabled sales — now ~10% of revenue — accelerated to +33.1% y/y in January (vs. +18.3% in December). Fiscal sales growth was steady at +7% (FY2023), +5% (FY2024) and +8% (FY2025), and EPS rose ~10% in FY2025; shares are up roughly 15% YTD. The results underscore durable consumer demand and rapid digital adoption, but the stock trades at a stretched P/E (~53), introducing valuation risk despite strong operational performance (note the company flagged potential benefit from severe winter storms in the month).

Analysis

Market structure: Costco (COST) is a clear winner as investors rotate from long-duration growth into stable, high-frequency retail; digitally enabled sales (10% of revenue, +33% YoY in Jan) lift delivery partners (DASH, UBER, Instacart) but compress near-term margins via subsidies. Losers include small-format grocers and many SaaS/growth names as capital flows into staples; higher share for membership-based bulk retail boosts Costco’s pricing power for staples while reducing discretionary retailers’ share.

Risk assessment: Key tail risks are membership churn if inflation spikes (>4% CPI) or regulatory scrutiny of delivery partnerships (antitrust on preferred placement) over the next 12–24 months. In the immediate term (days–weeks) expect profit-taking; short-term (1–3 months) watch digital promo cadence (monthly sales prints); long-term (several years) Costco’s moat holds if membership revenue grows >5% CAGR and EPS growth rebounds toward ~12%.

Trade implications: Given P/E ~53 and EPS +10% in FY25, valuation risk dominates near-term: trim exposure and monetize upside via covered calls (1–3 month, 7–10% OTM) or a 6–12 month collar. Tactical long exposure to DASH/UBER (0.5–1% each) captures delivery volume upside funded by profit-taking; pair trade: long COST on >20% pullback vs short a basket of long-duration consumer tech names.

Contrarian angles: Consensus underprices the margin impact of sustained delivery credits and overprices steady multiple expansion — re-rating could reverse if digitally enabled growth reverts below 15% YoY. Historical parallels (WMT re-rate post-digital investment) show patient buyers can win, but only if priced-in growth expectations reset (target P/E ~40).

Key Decisions for Investors

• If you hold COST: sell 25% of current position within the next 10 trading days to lock gains from the 15% YTD rally given P/E ~53 and EPS only +10% in FY25.
• Implement a protective collar on remaining COST shares: sell 1–3 month calls 7–10% OTM on up to 50% of shares to collect premium and buy 6–12 month puts ~5% OTM on the remainder to cap downside; re-evaluate at next quarterly earnings.
• Establish small tactical longs in delivery plays: initiate 0.5% position in DASH and 0.5–1.0% in UBER within 30 days to capture faster digitally enabled fulfillment growth; size funded from proceeds of COST trim; exit if Costco digital sales growth falls below +15% YoY on two consecutive monthly prints.
• Do not add material new COST exposure unless: (a) price declines ≥20% (implied P/E falls to ≈40) OR (b) trailing EPS growth accelerates to ≥12% on two sequential quarters — only then scale back into a 1–2% portfolio weight over 3 months.