Justin Pope, The Motley Fool

Tue, Jun 3, 2025, 6:05 PM5 min read

• Costco Wholesale is a fantastic business that continues to grow.

• Investors have steadily pushed its valuation higher since the pandemic years.

• What goes up may ultimately come down -- a seemingly unthinkable outcome for such a winning stock.

• 10 stocks we like better than Costco Wholesale ›

Maybe it's those famous $1.50 hot dog meals, but Costco Wholesale (NASDAQ: COST) continues to flex its muscles.

The leading membership warehouse retailer reported impressive numbers in its most recent earnings report, highlighting the company's robust customer base at a time when consumers are pulling back at many other stores.

The stock's long-term performance is legendary. Costco's shares have risen by over 600% in the past decade alone. The company was a favorite of the late Charlie Munger, who, alongside Warren Buffett, helped run Berkshire Hathaway for decades.

I crunched the numbers to see whether the stock's future is as bright as its past. Here is where I think Costco Wholesale stock will be in five years.

Costco Wholesale is a warehouse store, which sells items in bulk and other products not typically found at discount retailers, such as Walmart or Target. And people need a paid membership to shop there.

The beauty of Costco's business model is that it sells its merchandise at razor-thin margins, while generating most of its profits from membership fees. Its secret sauce, though, is the brand power it has built.

Costco has made its stores destinations for consumers, who sometimes go out of their way to visit their closest one for perks like discounted gas or the company's famous $1.50 hot dog meal. The branding works so well that it doesn't spend any money on marketing, an incredible fact, considering how competitive the retail space is.

Chatter has picked up this year about a slowing economy, and some companies have sounded the alarm on consumer spending. Yet Costco's most recent quarter featured an impressive 8% increase in net sales (a 5.8% increase in comparable-store traffic) from the same period a year ago. Paid memberships, Costco's core earnings engine, rose by 6.8%.

Costco Wholesale is genuinely a world-class business, so it makes total sense that the stock has performed so well over time.

But when a stock price rises faster than the company's earnings grow, the valuation goes up.

The stock traded at a price-to-earnings (P/E) ratio between 25 and 35 for several years leading up to the COVID-19 pandemic. But over the past five years, that has steadily risen to nearly 60 times earnings today.