This year has been a challenge for many retailers, but Costco Wholesale (COST -0.08%) it is not one of them. The business has continued to perform well in a myriad of economic conditions, consistently posting strong quarterly results. And entering this week, the stock has risen by 50%, surpassing the S&P 500 the index and its 27% gains a wide margin.
But that doesn’t mean it will necessarily be smooth sailing for Costco in 2025. The stock is trading at record highs, and investors are now paying a massive 58 times earnings to own a piece of the business. Can Costco stock continue to build off its massive gains next year, or is it due for a correction?
Costco delivered another strong performance in Q1
On December 12, Costco reported its first quarter earnings for fiscal 2025. It was a strong showing for the business, with Costco growing its net sales by 7.5% for the period ending the November 24 at just under $61 billion, as you get. a small boost from an increase in membership prices. Comparable store sales growth of 5.2% also showed that business remains resilient, and that even while discount retailers and dollar stores are struggling, people see a lot of value in Costco’s stores.
Costco beat expectations for the quarter with adjusted earnings per share of $4.04 that looked particularly strong against the $3.79 that Wall Street analysts were expecting. Although it was another solid quarter for the business, the stock did not take the news. And this could be a sign that perhaps its valuation may prove a little too rich for many investors.
Is Costco Stock Due for a Slowdown in 2025?
While Costco’s business is still growing and providing good comparable numbers, there is no denying that things are already starting to slow down. The company’s growth rate is not as high as in previous years.
COST Operating Revenue (Quarterly Growth YoY) Data from YCharts
While the growth rate of Costco remains strong, especially given that the economic conditions are not ideal now, it is low when considering the context of its valuation. A year ago, investors had already paid a significant premium for the business when the price-to-cost multiple was north of 40. Now, as approaching 60, it may be even more difficult for investors to justify the addition of shares to their partners. wallets In comparison, rivals Walmart it is currently trading at just 39 times its trailing earnings.
Given the slowing growth trend and its high valuation, Costco is a stock that I certainly expect for a down year in 2025.
Is Costco still a good long-term buy?
If you’re looking at the next five or 10 years, Costco is still a stock that can generate good returns for you. It has many growth opportunities to pursue internationally, especially in China where it has opened new locations this year.
But the caveat is that it might take time for his performance to get his high rating. If you are comfortable with the prospect of next year possibly not being a big one for the stock and are willing to buy and hold for several years, then Costco may still be a good option to hang on or consider buying. Otherwise, you may be better off considering cheaper growth stocks to buy.