Costco (COST) has been a solid investment as its stock has significantly outperformed the broader market for years. Recently, shares of the popular membership-based warehouse retailer reached an all-time high of $1,078.23 before pulling back slightly. Even with that dip, Costco stock has surged 21.4% over the past year, far outpacing the S&P 500 Index’s ($SPX) 10% gain. Looking further back, the numbers are even more striking. Costco has delivered a staggering 97% return over the past two years, compared to the benchmark index’s 41.8% increase.
While Costco stock has consistently outpaced the S&P 500, one factor that fuels skepticism is its valuation. It trades a forward price-to-earnings (P/E) multiple of 58.1x, much higher than Walmart (WMT) and Amazon’s (AMZN) forward P/E ratios of 36.5x and 33x, respectively. Its premium against peers makes the market cautious. However, Costco stock has always traded at a premium multiple, and its high valuation has been backed by its consistent growth and strong earnings performance, which has propelled its stock higher over time.
Further, at least one Wall Street analyst believes Costco has more room to run, setting a bullish price target of $1,205 — the highest on the Street. If that prediction plays out, it would mean 27% upside in one year.
Let’s examine Costco’s recent financial performance and initiatives and their impact on its share price.
A Closer Look at Costco’s Growth Potential
Costco posted mixed results in its most recent earnings report for the second quarter of its fiscal 2025. Revenue came in at $63.72 billion, up 9% year-over-year and surpassing analyst expectations. Comparable store sales climbed 6.8%, and membership fee income rose 7.4% to $1.19 billion. Additionally, the company’s e-commerce segment remained a bright spot, with online comparable sales surging 20.9% in the quarter.
However, while revenue growth was strong, earnings per share (EPS) of $4.02 fell short of expectations, coming in below the consensus estimate of $4.11. Given its high valuation, any earnings miss can trigger volatility in Costco’s stock.
Nonetheless, Costco has several positive factors that support its bull case. One of its biggest advantages is its loyal customer base. Membership renewals in the U.S. and Canada stood at an impressive 93% at the end of Q2, while the global renewal rate was 90.5%. This stability is crucial for maintaining recurring revenue and long-term growth.
Another potential boost will come from Costco’s recent increase in membership fees, which will drive its earnings and support its share price. The fee hike contributed about 3% to Q2 fee income, with most of the benefits expected to materialize over the next four quarters, peaking in Q4 FY25 and Q1 FY26. This additional revenue stream could further strengthen Costco’s financials.
E-commerce is another exciting area of growth. The company’s strategic initiatives to enhance customer convenience while reducing shipping costs will drive traffic and profitability. Costco also focuses on improving product selection and faster delivery, which should enhance the shopping experience and drive higher sales.
Costco also continues to invest in technology to streamline operations and add convenience. Features like membership card scanners at entrances have been well received by customers, reducing wait times and improving the shopping experience.
Final Thoughts: Is $1,200 Realistic?
Costco’s strong business model, loyal customer base, and ongoing investments in e-commerce suggest that the retailer could deliver consistent growth. The recent membership fee hike provides an additional income boost.
Reaching $1,200 within a year doesn’t look impossible, especially if Costco continues to deliver strong results. However, investors should be mindful of its high valuation. While some analysts remain cautious, others consider its premium pricing justified given the superior growth trajectory.
Costco currently holds a “Moderate Buy” consensus rating among analysts, reflecting both the optimism and valuation concerns surrounding the stock.
