Should You Buy Costco Stock Right Now With $2,000 and Hold for 5 Years?

With $69 billion in third-quarter 2026 (ended May 10) net sales, Costco Wholesale (NASDAQ: COST) is the world's third-largest retailer. Only Walmart and Amazon are ahead in the rankings.

Within this sector, Costco has cemented its position as the dominant warehouse club operator. It consistently wins customers over with its no-frills, treasure-hunt shopping environment, high-quality merchandise assortment, and extremely low prices. The business has led the industry for some time.

Should you buy this top retail stock, which currently trades 18% off its peak (as of Sept. 10), right now with $2,000 and hold for five years? Here are the most important factors investors should consider.

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Add Costco to your watch list

Investors should always keep and update a list of businesses that they'd like to own. This list should focus on high-quality companies. Costco undoubtedly fits this description.

The company has tremendous scale. Its huge net sales figure comes from selling only about 4,000 stock-keeping units (SKUs) on average at its warehouses, a significantly more selective list of products than typical supermarkets. Consequently, Costco has unmatched negotiating leverage with its vendors, who are all competing to be on the semi-exclusive list. That leverage helps generate savings that are passed to consumers, resulting in highly competitive product pricing.

Costco also benefits from customer loyalty. This is bolstered by its membership business model, requiring shoppers to pay annual fees. In the second quarter, membership fee income rose 10.7% year over year to $1.4 billion. This brings in a high-margin and recurring revenue stream.

With a renewal rate of 92.2% in the U.S. and Canada, however, memberships also support repeat shopping visits. Households that pay their annual dues are more inclined to spend their money at Costco to ensure they get their money's worth from the membership. This is something every retailer would love to have.

Costco is an all-weather business. It performs well not only in robust economic periods, but also in adverse situations. Same-store sales grew 7.7% during fiscal 2020, despite the COVID-19 pandemic. The last time this metric declined might be as far back as fiscal 2009, when it fell 4% during the recession caused by the real estate meltdown. Even during the elevated inflationary period of recent years, Costco's momentum has kept up.

Great businesses don't always make great investments

Costco has historically been a very lucrative stock to own. The share price is up about 94% in the past five years. Including dividends, the total return jumps to almost 105%.

As mentioned, though, the stock is trading 17.5% off its peak right now. Investors who have been on the sidelines watching this business and waiting for the right opportunity might view the current setup as a good time to take action.

However, the valuation still doesn't look attractive. In my view, there is no margin of safety present. The stock can be bought today by investors willing to pay a price-to-earnings (P/E) ratio of 45.4. That's not cheap, even though it is a small discount to the trailing five-year average of 46.8.

Investors don't argue that this is a wonderful company. Costco's scale advantage, customer loyalty, and steady sales growth are impressive characteristics. The business has been valued so highly by the market because it's stable and predictable. And this makes it a safe holding in strong and weak economic environments.

But this necessarily doesn't justify paying today's valuation. And it doesn't mean the stock will automatically be a winner over the next five years. The investment community prizes growth. And given Costco's maturity, its profit gains will surely continue to decelerate. This could cap how high the valuation can go.

Investors might want to consider waiting patiently for a pullback. If the P/E multiple came down meaningfully to 30, then Costco would be a no-brainer buying opportunity with $2,000. But it's impossible to know if or when this will happen.

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