With Costco Down 7% From Its All-Time High, Could Buying Now Set You Up for Life?

The overall brick-and-mortar retail sector is hyper-competitive. The businesses with a highly regarded brand and significant scale are the ones that have achieved durable success. Costco (NASDAQ: COST) is one of these companies.

Its shares have generated a total return of 688% in the past 10 years (as of April 22). But they've had a hard time establishing a new peak. This retail stock is trading almost 7% off its all-time record from February 2025.

Investors might view this situation as a reason to look closely at this opportunity. Could buying Costco shares now set you up for life?

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Valuation should never be overlooked

Warren Buffett, the legendary investor who transformed Berkshire Hathaway into a trillion-dollar conglomerate, popularized the concept of value investing. Buying companies at attractive valuations is core to the Oracle of Omaha's philosophy.

Keeping this in mind, it's strikingly clear that Costco isn't a stock worth buying today. The valuation shouldn't be overlooked. Shares trade at a steep price-to-earnings ratio of 52.2, demonstrating lofty market expectations that leave no room for error.

If you're looking for stocks that can set you up for life, you're probably after a sensational 50-fold or 100-fold gain in the coming decades. Costco simply won't pass the test.

Besides the valuation, scale is the other factor that limits long-term growth potential for this massive business. It's much more difficult to expand from a fiscal 2025 net sales base of $270 billion than it is to grow from a drastically smaller revenue position.

To be fair, Costco's expansionary runway is not even close to being finished. It plans to open "30-plus" net new warehouses annually, up from a planned 28 in fiscal 2026. This will help grow its membership base, while lifting sales and earnings down the road.

Costco stock is a high-quality benchwarmer

This pessimistic view doesn't mean that Costco should be completely ignored. This is an outstanding company that has a storied history and a bright future. Its track record of consistent same-store sales growth is impressive. Thanks to steadily rising profits, Costco has also been able to increase the dividend 189% in the past 10 years, with occasional special one-time payouts.

I believe the smart move is for investors to leave Costco stock on the watchlist for now. It can be added to the portfolio bench, if you will, as investors wait for a sizable pullback before acquiring shares.

This will test patience and discipline, critical traits that are necessary for long-term success in the stock market.

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