Is Costco Stock (COST) Still a Buy Despite Valuation Concerns?

Costco Wholesale Corporation (COST) has long been a darling of the retail sector, celebrated for its membership-driven model and disciplined cost structure. However, as of 2025, the stock trades at a trailing price-to-earnings (P/E) ratio of 47.78, significantly above its 10-year average of 38.65, and a price-to-book (P/B) ratio of 13.44, far exceeding the retail sector's average of 8.43 for general retail and 3.50 for grocery and food retail according to data. These metrics raise a critical question: Is Costco still a buy for contrarian value investors, or has the market priced in all its future potential?

Valuation Metrics: A Premium for a Premium Model

Costco's elevated valuation metrics are undeniable. Its P/E ratio outpaces peers like Walmart (40.66) and Target (11.78)), while its P/B ratio dwarfs even industry leaders. Yet, these figures must be contextualized within the company's unique business model. Unlike traditional retailers, Costco generates recurring revenue through membership fees, which accounted for a significant portion of its $269.9 billion in 2025 net sales. With 80 million members globally-up 39% over five years-and U.S. and Canadian renewal rates at 92.7%, the company's sticky customer base justifies a premium valuation.

Moreover, Costco's profit margins remain robust. A net margin of 2.94%, while modest, reflects its low-cost, high-volume strategy. Its operating margin of 3.77% and EBITDA margin of 4.87% underscore operational efficiency, particularly in an inflationary environment where many retailers struggle. These fundamentals suggest that Costco's valuation, while high, is not entirely disconnected from its earnings power.

Growth Momentum: Expanding Footprints and Digital Transformation

Costco's 2025 growth strategy is anchored in physical and digital expansion. The company plans to open 30 new warehouses, with a focus on international markets like Mexico and South Korea according to analysis. This geographic diversification mitigates U.S. market saturation risks and taps into regions with growing middle-class spending power.

Equally compelling is Costco's digital transformation. E-commerce sales surged 15.6% in fiscal 2025, driven by omnichannel integration and a user-friendly platform. Analysts project this trend to accelerate, with digital sales rising 11.5% over five weeks and 15.3% over 44 weeks. Such momentum positions Costco to capture a larger share of the e-commerce boom, a critical differentiator in a retail landscape increasingly dominated by Amazon.

Competitive Advantages: A Fortress of Scale and Brand Loyalty

Costco's competitive moat is formidable. Its membership model creates a flywheel effect: loyal customers drive volume, which lowers costs through economies of scale. This, in turn, allows Costco to maintain everyday low prices, reinforcing customer retention. The Kirkland Signature private-label brand further enhances margins and brand differentiation, while the company's purchasing power enables it to negotiate favorable terms with suppliers.

Disciplined capital allocation also sets Costco apart. The company's free cash flow generation supports strategic investments in warehouses, technology, and inventory, ensuring long-term growth without overleveraging. As stated by a report from Monexa.ai, Costco's "strong free cash flow and strategic capital expenditures" underpin its ability to sustain growth even in a high-valuation environment.

Analyst Projections: Justifying the Premium

Despite the high P/E ratio, analyst forecasts suggest Costco's fundamentals will justify the premium. Wall Street consensus estimates project 7.4% annual revenue growth from 2025 to 2028, with a compound annual growth rate (CAGR) of 6.36% in revenue and 11.05% in earnings per share (EPS) through 2029. At a forward P/E of 54.07x, the stock appears expensive, but these projections imply that earnings growth could outpace the valuation multiple, delivering long-term value.

Contrarian Case: A High-Valuation Paradox

For contrarian value investors, Costco presents a paradox: high valuation metrics coexist with strong fundamentals and growth. While traditional metrics like P/E and P/B suggest overvaluation, they fail to capture the company's recurring revenue streams, brand loyalty, and digital adaptability. As noted by Artificall.com, Costco's "membership model ensures predictable revenue, while its scale and cost advantages create a durable competitive edge."

The key question is whether the market has overcorrected. If Costco's growth trajectory aligns with analyst projections, the current valuation could be a temporary overhang rather than a permanent flaw. For investors with a long-term horizon, the company's ability to reinvent itself-through e-commerce, international expansion, and private-label innovation-may justify the premium.

Conclusion

Costco's valuation metrics are undeniably high, but they reflect a company with a proven ability to adapt and grow. Its membership model, operational efficiency, and strategic investments in digital and international markets create a compelling case for long-term value creation. While contrarian investors may balk at the P/E ratio, the alignment of fundamentals and growth projections suggests that Costco's premium is not unwarranted. For those willing to look beyond short-term multiples, Costco remains a buy-a stock where high valuation meets higher potential.