Is Costco Stock a Long-Term Buy?

Costco (NASDAQ: COST) has been an outstanding holding for investors. In the past 40 years, shares have climbed 14,540%, crushing the S&P 500 index. Including dividends, the gains are even more impressive.

This top retail enterprise has many attractive qualities that can draw in investors looking to own a great business. But is Costco a worthy long-term buy right now?

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Costco's advantages

Costco is a top-notch company. It has become a favorite among consumers looking to score huge savings on a variety of merchandise. Offering a no-frills shopping experience with bulk-size goods has supported the retailer's brand presence in a competitive industry.

The durability Costco operates with is impressive. Whereas it seems everyone is worried about tariffs these days, this company keeps posting same-store sales growth. I'd bet that even in a recessionary period, Costco would see strong demand.

What's more, Costco's scale can't be overlooked. The business reported $62.5 billion in net sales in Q2 2025 (ended Feb. 16). As a result, it can flex its bargaining power with suppliers. These vendors have no choice but to play ball, or else they'd lose an invaluable retailing partner. The cost savings Costco acquires benefit shoppers in the form of low prices. That can drive even more spending, furthering supporting Costco's scale advantage.

Running a membership-based model provides the business with a high-margin and predictable source of revenue. Even better, it can boost customer loyalty. Knowing that they paid a certain amount for an annual Costco membership encourages consumers to visit the company's warehouses over competitors' stores.

Show me the growth

It shouldn't come as a surprise that Costco's main growth strategy centers on opening new warehouses. In fiscal 2024, the company added 29 net new stores to its footprint. The plan in fiscal 2025 is to open 25 more. Management talked about keeping a pace of 25 to 30 openings annually over the long term.

Besides the U.S., the business has a presence in 13 different countries. However, most of the expansion today is still happening domestically. That's a positive indicator that the leadership team still sees tremendous potential in its biggest and most lucrative geography.

Over time, this could change. Management eventually sees more new store openings depending less on the U.S. and more on international markets. It's encouraging to see meaningful opportunities to grow. And it's a clear sign that no matter where consumers are, they always value a customer-friendly shopping experience.

Between fiscal 2014 and fiscal 2024, Costco's revenue increased at an 8.5% compound annual rate. Over the next three years, Wall Street consensus analyst estimates call for the top line to grow at a 7.2% yearly clip. Due to the massive size of this company, I think it's reasonable to expect those gains to steadily decline over time.

Dividends and valuation

Costco's steady operations and growth trajectory help support its consistent profitability. The leadership team is focused on taking care of shareholders. Earnings are used to pay a dividend, but it currently yields just 0.53%. That's not anything to write home about.

However, it's worth noting that the capital allocation policy also includes special one-time payouts. In January 2024, Costco paid a $15 per share dividend. Before that, $10 per share was paid to investors in December 2020. This can boost shareholders' returns.

It's impossible to argue with Costco's phenomenal track record. Investors have seen monster returns in the past, but I'm not confident the good times will keep on rolling.

This is a wonderful company. And the market knows it. The stock trades at a nosebleed price-to-earnings ratio of 57 -- about as expensive as it's ever been. Even for an elite business like Costco, I believe this valuation is the key reason this isn't a good long-term buy.

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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.