After soaring 50% this year, can Costco’s wholesale shares continue their impressive rally in 2025?

This year has been difficult for many retailers, but Costco wholesale (COST -0.08%) is not one of them. The company has continued to perform well in a multitude of economic conditions, continually posting strong quarterly results. And as of this week, the stock is up 50%, outperforming the S&P500 index and its gains of 27% by a wide margin.

But that doesn’t mean it’ll necessarily be smooth sailing for Costco through 2025. Retail stocks are trading at record highs, and investors are now paying 58 times earnings to own a piece of the company. Can Costco stock continue to build on its massive gains next year, or is it due for a correction?

Costco delivers another strong first quarter performance

On December 12, Costco reported its first quarter results for fiscal 2025. This was a strong performance for the company, with Costco increasing its net sales by 7.5% for the period ending November 24 to reach just under $61 billion, while it got a small boost from an increase in membership prices. Same-store sales growth of 5.2% also showed that the company remains resilient and that even though discount retailers and dollar stores are struggling, people see a lot of value in Costco’s warehouses.

Costco beat expectations for the quarter with adjusted earnings per share of $4.04, particularly strong compared to the $3.79 expected by Wall Street analysts. Although it was another strong quarter for the company, the stock didn’t take off following the news. And that could be a sign that its valuation may be turning out to be a little too rich for many investors.

Is Costco stock expected to see a slowdown in 2025?

Even though Costco’s business continues to grow and generate good comparable numbers, it’s clear that things are already starting to slow down. The company’s growth rate is not as high as in previous years.

COST Operating Revenue Data (YoY Quarterly Growth) by YCharts

While Costco’s growth rate remains strong, especially since economic conditions are not ideal at the moment, it is weak when considering the context of its valuation. A year ago, investors were likely already paying a significant premium for the company when Costco’s price-to-earnings multiple was above 40. Now, as it approaches 60, it may be even more difficult for investors to justify adding the stock to their portfolio. wallets. In comparison, rival Walmart currently trades at just 39 times current earnings.

Given the slowdown in growth and its high valuation, Costco is a stock that is certainly expected to have a bear year in 2025.

Is Costco still a good buy in the long run?

If you look at the next five or ten years, Costco remains a stock that can generate good returns for you. It has numerous growth opportunities to exploit internationally, particularly in China where it opened new sites this year.

But the caveat is that it may take time for its performance to catch up with its high valuation. If you are comfortable with the prospect that next year may not be good for the stock and you are willing to buy and hold for several years, then Costco may still be a good option to hold or to consider purchasing. Otherwise, you might be better off considering buying cheaper growth stocks.