Costco Stock Has Had a Tough Year. Time to Buy?

Costco reported fiscal Q4 results showing resilient demand—net sales rose 8% year‑over‑year to $84.4 billion (FY sales $269.9 billion), comparable sales +5.7%, e‑commerce +13.6% in the quarter, and EPS +11%—while adding 10 new warehouses. The membership model remains the primary profit engine with membership fee income up 14% to about $1.72 billion, 81 million paid households (+6.3%), and executive members (up 9.3%) driving roughly three‑quarters of worldwide sales, although renewal rates dipped to 92.3% in the U.S./Canada and 89.8% globally as management absorbed online signups and past promotional conversions. Financially conservative with cash and short‑term investments north of $15 billion against $5.7 billion of long‑term debt, Costco’s strong fundamentals are tempered by a rich valuation (forward P/E around 49 versus the S&P ~26), leaving limited margin for error if comparable sales or renewals meaningfully soften—suggesting existing holders may stay put but prospective buyers might await a better entry.

Analysis

Costco reported fiscal Q4 net sales of $84.4 billion, up 8% year‑over‑year, and fiscal 2025 net sales of $269.9 billion (+8.1%), driven by total‑company comparable sales growth of 5.7% and e‑commerce gains of 13.6% for the quarter (15.6% for the year); fourth‑quarter EPS rose 11% and management opened 10 new warehouses. Shares have slipped below $900 and are down on the year in 2025 despite these results, while management credited merchandising, operations and employee investment for the performance.

Costco’s membership model remains the primary earnings driver: membership fee income increased 14% to about $1.72 billion, paid household memberships reached 81 million (+6.3%), and executive members rose 9.3% and account for nearly three‑quarters of worldwide sales. Renewal rates softened to 92.3% in the U.S. and Canada and 89.8% worldwide, which management attributes to online signups and the timing of prior promotional conversions, and a recent U.S./Canada fee increase helped lift fee income but limits near‑term repeat fee upside.

The balance sheet is conservative, with cash and short‑term investments north of $15 billion against $5.7 billion of long‑term debt leaving Costco in a net‑cash position that supports dividends and expansion. Nonetheless, the stock trades at a price‑to‑earnings ratio near 49 versus the S&P ~26, creating limited margin for error if comparable sales slow or renewal rates continue to drift lower; valuation risk argues for cautious sizing rather than aggressive new entries.

Key Decisions for Investors

• Existing shareholders should generally hold but consider trimming into strength if comparable sales or renewal trends deteriorate given the near‑50 P/E and limited margin for error
• Prospective buyers should wait for a meaningful pullback or clearer evidence of sustained upside in comps and renewal rates before initiating material new positions
• Monitor quarterly comparable sales, renewal rates, and membership‑fee guidance closely and consider modest hedges or reduced position size given valuation risk despite the strong net‑cash balance sheet