Latest Occurrences when Costco Shares Reached Such High Levels Previously. Could History Exhibit Similar Patterns Again?
Millions of shoppers flock to Costco Wholesale (COST), enchanted by its affordably priced merchandise. With nearly 900 warehouses spanning across various countries, including the U.S., Canada, and Iceland, this membership-only retailer boasts an impressive global presence.
However, while you can snag a bargain on Costco's shelves, the same can't be said for its stock. With a sky-high forward P/E ratio of 50.8 as of 2025, investors might wonder if the cost is too much.
A Rearview Mirror Moment?
Before assuming that high P/E ratios can't signal value, consider the possibilities. A booming growth outlook could justify such prices. But that doesn't appear to be Costco's case since its PEG ratio (a growth-adjusted P/E) also soars at 5.5.
Fascinatingly, Costco's shares resemble a '90s throwback, priced in a manner not seen since April 1999. When Costco's trailing 12-month P/E multiple hit 56.4 back then, a rainstorm followed.
History May Repeat Itself (Maybe)
A single-sample analysis is insufficient for predicting trends, as any statistician would caution. Likewise, those with an eye on history might remind us that Costco's 1999 P/E peak occurred before the dot-com bubble burst, when stocks' valuations frequently went beyond rational bounds.
Intriguingly, the current market climate bears a resemblance to the dot-com era with artificial intelligence (AI) fueling the frenzy, rather than e-commerce. Some observe that the AI market may be playing the role of the 1999 dot-com bubble.
Costco was an exception during the previous period, and now it's the outlier once more.
Buy Costco Stock?
Several experts believe Costco's shares are poised to soar, despite its premium valuation. Their rationale? Costco's remarkable streak of market-share growth and its membership-fees-centric business model.
But there's a catch: Earnings growth must consistently outpace the stock's valuation to justify its price. Without a significant increase in earnings, the stock may eventually face a correction, as it did in 1999.
That said, inflation could push more customers to Costco's warehouses in the future, prompting an opportune moment for long-term investors to jump in, should history repeat itself.
Given the high P/E ratio and PEG ratio of Costco's stock, some investors might question if the current price is too steep, reminiscent of the tech bubble in 1999. However, if Costco continues to demonstrate substantial earnings growth that outpaces its valuation, it could offer a potential investment opportunity, especially considering the rising inflation rates driving more customers to discount retailers.
