Costco: Is the Opportunity Over?

Costco (NASDAQ: COST) is a club store, meaning its customers pay membership fees to shop at its stores. This changes the retailer's profit equation in a very important way. That's both a positive and a negative when you consider Costco as an investment.

Costco's drawdown is over

Costco's stock fell just shy of 20% in the back half of 2025, hitting a bottom just before the end of the year. That's a big drawdown, but one that is fairly normal for this retailer. Over the past decade, the stock has fallen by 15% or more on multiple occasions. Given that Costco's share price is just 7% below its all-time high, each one of the drawdowns over the past decade was a buying opportunity.

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One of the biggest reasons to like Costco is its business model. The membership fees it collects create an annuity-like income stream and allow the company to compete aggressively on price. It's a virtuous cycle that keeps members coming back for more and the company's revenues rising. But Wall Street is well aware of the positives, pushing the shares higher to the point where Costco is now one of the world's largest consumer staples stocks. And that changes the equation in a big way.

Costco's valuation isn't what it was

Given the rebound in Costco's stock price, the current buying opportunity presented by the recent drawdown does indeed look over. However, investors need to take a broader view when deciding whether to buy this giant retailer. Notably, Costco's price-to-sales, price-to-earnings, and price-to-book ratios are all above their five-year averages right now. Using traditional valuation tools, the stock looks expensive.

That said, even during the worst of the recent drawdown, the stock was still expensive. For example, at the nadir near the end of 2025, the P/E ratio dropped to around 45X. That is well below the stock's recent peak P/E of over 60x, but still at the high end of the stock's historical P/E range. For comparison, the S&P 500 index (SNPINDEX: ^GSPC) has an average P/E of nearly 28x, and it is still near its all-time highs. So even during the last drawdown, most value investors would have still found Costco's stock far too expensive to buy.

Is Costco worth buying?

Essentially, Costco, even during a drawdown, is likely to be attractive only to more aggressive growth investors. If that's what you are, keep it on your wish list for the next big drawdown. But before you buy it, make sure you understand just how expensive the stock is, both on an absolute basis and relative to its history and the broader market.

Reuben Gregg Brewer 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.