Costco Stock: A Long-Term Investment or Overvalued?

ISSAQUAH, Wash. — As of January 2025, Costco Wholesale (NASDAQ: COST) continues to be a standout in the retail sector, boasting a market capitalization of $417 billion. Despite a slight dip of 0.26% in its stock price, trading at $939.68, the company remains a focal point for investors seeking long-term wealth-building opportunities.

Costco’s financial performance is underpinned by its robust return on assets (ROA) and return on equity (ROE), metrics that highlight its efficiency and stewardship of shareholder investments. The company’s gross profit margin, while not the highest in the industry, is bolstered by its lucrative membership program, which generated $4.8 billion in fees in fiscal year 2024, accounting for 65% of its $7.4 billion net income.

Unlike many discount retailers, Costco differentiates itself through its employee benefits and product quality. The company offers competitive wages and comprehensive health plans, contributing to high employee satisfaction and low turnover. Its Kirkland Signature brand is often compared favorably to leading national brands, further enhancing customer loyalty.

However, Costco’s stock is not without its challenges. Over the past five years, the stock has seen a compound average growth rate (CAGR) of 27%, outpacing competitors like Walmart (20.6%) and Amazon (18.7%). This growth has led to a premium valuation, making the stock less accessible for some investors. “Costco’s business quality is no secret,” said one analyst. “Investors are paying a premium for this stock, and while the company has earned it, the lofty valuations may not be for everyone.”

For those considering Costco as a long-term investment, the current high valuation may warrant caution. While the company’s fundamentals are strong, the timing of the investment could be crucial. “If you already have an automated Costco investment set up, it’s fine to continue,” advised another market expert. “But for new investors, it might be wise to explore other opportunities until Costco’s stock becomes more affordable.”

John Mackey, former CEO of Whole Foods Market and a member of The Motley Fool‘s board of directors, has positions in Amazon and Walmart. The Motley Fool itself holds positions in and recommends Amazon, Costco Wholesale, and Walmart.