Should You Buy Costco Before 2026?

COST +0.59% ^GSPC +0.54%

Key Points

• Shares of the warehouse retailer trade at an expensive price-to-earnings ratio of 50.

• Costco is an outstanding company that has consistently grown its same-store sales.

• But at the stock's current valuation, it may pay for investors to hold off a bit.

• 10 stocks we like better than Costco Wholesale ›

Shares of Costco Wholesale (NASDAQ: COST) have climbed an impressive 135% in the past five years (as of Nov. 26). This huge gain puts it significantly ahead of the S&P 500 index. Investors are wondering if the good times will continue. Should you buy this retail stock before 2026?

Valuation is a critical component of the investing process

Valuation can be a powerful tailwind for investors. However, this requires the starting valuation to be attractive, allowing room for multiple expansion. Costco doesn't fit the description. Its shares trade at a nosebleed price-to-earnings ratio of 50.

Looking out five years from now, there's a good chance that the multiple will contract. As time passes, Costco becomes more mature, which naturally starts to limit the growth opportunities available.

Costco is a fantastic business

Any reasonable analysis of Costco should result in the same takeaway, which is that this is an outstanding business. Based on the valuation, the market would agree.

Costco has historically done a great job of growing its revenue base, an increase driven by more members and a solid renewal rate. Costco has also consistently been able to grow its same-store sales and earnings per share.

Great companies aren't always in a position to generate market-beating returns for investors. In the same way that Costco shoppers are always looking to take advantage of a good deal, investors should wait for the stock to trade at a cheaper valuation before considering buying.

Should you buy stock in Costco Wholesale right now?

Before you buy stock in Costco Wholesale, consider this:

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

Should You Buy Costco Before 2026? was originally published by The Motley Fool