costco (NASDAQ: COST) It is a club store, which means 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 considering Costco as an investment.
Costco shares fell just 20% in the second half of 2025, bottoming out just before the end of the year. That’s a big reduction, but it’s pretty normal for this retailer. Over the past decade, the stock has fallen 15% or more on multiple occasions. With Costco’s stock price only 7% below its all-time high, each of the dips over the past decade was a buying opportunity.
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One of the main 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 revenue increasing. But Wall Street is well aware of the positives, driving the stock higher to the point where Costco is now one of the biggest consumer staples stocks in the world. And that changes the equation greatly.
Given the rally in Costco’s stock price, the current buying opportunity presented by the recent decline certainly appears to have disappeared. However, investors should take a broader view when deciding whether to buy this retail giant. 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 decline, stocks remained expensive. For example, at the lowest point near the end of 2025, the P/E ratio fell to around 45 times. That’s well below the stock’s recent P/E high of more than 60 times, but still at the upper end of the stock’s historical P/E range. For comparison, the S&P 500 Index (SNPINDEX: ^GSPC) It has an average P/E of almost 28x and is still near its all-time highs. So even during the last drawdown, most value investors would have considered Costco stock too expensive to buy.
Essentially, Costco, even during a downturn, is likely to be attractive only to more aggressive growth investors. If that’s who you are, keep it on your wish list for the next big reduction. But before you buy it, make sure you understand how expensive the stock is, both in absolute terms and relative to its history and the broader market.