Should You Buy, Hold or Sell Costco Stock After Q3 Earnings?

Costco's stock (COST) rose 4.6% after Q3 earnings surpassed estimates, driven by an 8% increase in comparable sales and a 6.8% rise in membership, with executive members now accounting for 73.1% of global sales. The company plans to open 27 new warehouses in fiscal year 2025, expanding its footprint in the U.S. and internationally, while also investing in e-commerce, which saw a 14.8% increase in comparable sales. Despite a premium valuation compared to peers, analysts have increased earnings estimates for the current and next fiscal years, projecting growth rates of 11.9% and 10.4%, respectively.

Analysis

Costco Wholesale Corporation (COST) reported strong third-quarter fiscal 2025 results, leading to a 4.6% increase in its stock price. The company surpassed Zacks Consensus Estimates for both top and bottom lines, driven by robust comparable sales growth of 8% globally (excluding gasoline and forex impacts), with the U.S. at 7.9%, Canada at 7.8%, and Other International markets at 8.5%. Membership metrics remain a key strength, with total paid household members growing 6.8% year-over-year to 79.6 million, and the more profitable Executive memberships increasing 9% to 37.6 million, now constituting 47.3% of paid members and driving 73.1% of worldwide sales. Membership fee income rose 10.4% to $1,240 million, with a recent fee increase contributing 4.6% to this growth, and renewal rates were high at 92.7% in the U.S. and Canada and 90.2% worldwide.

Looking ahead, Costco plans an aggressive expansion with 27 new warehouses in fiscal 2025, including 15 in the U.S. and significant international additions. The company's digital initiatives are also gaining traction, evidenced by a 14.8% rise in e-commerce comparable sales and a 31% increase in items delivered via Costco Logistics. New offerings like Costco Next and a Buy Now, Pay Later program with Affirm highlight its adaptability. Analyst sentiment has turned more positive, with consensus earnings estimates for the current fiscal year (FY25) rising by 6 cents to $18.02 (11.9% YoY growth) and for the next fiscal year (FY26) by 14 cents to $19.90 (10.4% YoY growth). Despite these positives, Costco faces intensifying retail competition, potential margin pressures, foreign exchange volatility, and tariff risks. Consumer spending shifts towards essentials could also impact discretionary sales. The stock has rallied 26.4% over the past year, significantly outperforming peers, but trades at a premium forward 12-month P/E ratio of 54.42, compared to the industry's 34.39 and significantly above competitors like Target (12.25), Ross Stores (22.44), and Dollar General (19.48).

Key Decisions for Investors

• Given Costco's strong Q3 FY25 performance, robust membership growth, successful e-commerce expansion, and strategic store opening plans, current investors may find a compelling case to hold their positions, aligning with the Zacks Rank #3 (Hold) recommendation.
• Prospective investors should carefully consider the stock's significant premium valuation, with a forward P/E of 54.42, and may wish to await a more favorable entry point or a pullback before initiating a position.
• Investors should monitor key risks including intensifying retail competition, potential deleverage in SG&A affecting margins, foreign exchange fluctuations, tariff impacts, and shifts in consumer spending patterns towards essentials, which could influence Costco's future performance.