Why Costco Stock Jumped 11% Last Month

Shares of retail giant Costco Wholesale (NASDAQ: COST) jumped 11.2% during November, according to data provided by S&P Global Market Intelligence. The company reported monthly sales results early in the month and that's all the encouragement that investors needed to send the stock to an all-time high approaching $1,000 per share.

Costco's sales results for October were released on Nov. 6, showing a 7% increase from October 2023. Interestingly, management believes that sales would have been up by an even higher amount. But hurricane preparations in September pulled some sales forward.

While a single-digit increase might not seem like much, Costco is one of the biggest businesses in the world with annual sales in excess of $250 billion. Therefore, gaining even a single percentage point translates to billions of dollars.

Costco stock has been one of the best performing stocks of the past decade with shares up nearly 600%. And it's also been a great performer in 2024, considering the stock is up 49% year to date as of this writing. And with ongoing strong sales results, investors are reluctant to sell.

More all-time highs than one

Costco's stock price is hitting all-time highs but so is its valuation. The company went public nearly 40 years ago. But at a price-to-earnings (P/E) ratio of 60, Costco stock has never been more expensive than it is right now, as the chart below shows.

COST PE Ratio data by YCharts.

In fact, the P/E ratio for Costco stock is more than double its all-time average, which is definitely something that investors today need to take into account when making decisions to buy or sell shares.

How should investors process this?

In investing, there are various risks, including competition, new technologies, and changing regulations. But valuation can also present a risk. If investors today pay more than Costco is worth, they risk seeing little return on their investment even if the business performs well.

This is the only pressing risk that I see with an investment in Costco stock today. And that provides a measure of comfort. Consider that the business uses a membership-based model. And right now, retention rates are high, new members are signing up, and the average age of its members is getting younger, which are all really good signs for the long-term health of the business.

For this reason, I find it unlikely that Costco would post financial results bad enough to sink shares back down to more reasonable valuations. It's more likely that shares won't pull back unless there's a broad market decline.

If I were a shareholder, I'd take comfort in knowing that the business is as solid as ever, and October financial results showed that. Moreover, the company just released its net sales for November, showing another 6% sales jump. So I wouldn't necessarily consider selling. That said, for those looking to buy Costco stock, it may be prudent to wait for a better price with the valuation now at unprecedented levels.

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Jon Quast 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.