After Soaring 50% This Year, Can Costco Wholesale Stock Continue Its Impressive Rally in 2025?

This year has been a challenging one for many retailers, but Costco Wholesale (NASDAQ: COST) isn't one of them. The business has continued to do well under a myriad of economic conditions, continuously posting strong quarterly results. And entering this week, the stock has risen by 50%, outperforming the S&P 500 index and its 27% gains by a wide margin.

But that doesn't mean it'll necessarily be smooth sailing for Costco heading into 2025. The retail stock is trading at record highs, and investors are now paying a massive 58 times trailing earnings to own a piece of the business. Can Costco's stock continue building off of its massive gains next year, or is it due for a correction?

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Costco delivers another strong performance in Q1

On Dec. 12, Costco reported its first-quarter earnings for fiscal 2025. It was a strong showing for the business, with Costco growing its net sales by 7.5% for the period ending Nov. 24 to just under $61 billion, as it got a small boost from an increase in membership prices. Comparable-store sales growth of 5.2% also showed that the business remains resilient, and that even as discount retailers and dollar stores are struggling, people are seeing plenty of value at Costco's warehouses.

Costco beat expectations for the quarter with adjusted earnings per share of $4.04 looking particularly strong against the $3.79 which Wall Street analysts were expecting. Although it was yet another solid quarter for the business, the stock didn't take off on the news. And that could be a sign that perhaps its valuation may be proving to be a bit too rich for many investors.

Is Costco's stock due for a slowdown in 2025?

While Costco's business is still growing and delivering good comparable numbers, there's no denying that things are already starting to slow down. The company's growth rate is not as high as it has been in previous years.

COST Operating Revenue (Quarterly YoY Growth) data by YCharts

While Costco's growth rate remains strong, especially given that economic conditions aren't ideal right now, it's low when you consider the context of its valuation. A year ago, investors were arguably already paying a significant premium for the business when Costco's price-to-earnings multiple was north of 40. Now, as it approaches 60, it may be even more difficult for investors to justify adding the stock to their portfolios. By comparison, rival Walmart is currently trading at just 39 times its trailing profits.

Given the slowing growth trend and its high valuation, Costco is a stock I'd certainly expect to be due for a down year in 2025.

Does Costco still make for a good long-term buy?

If you're looking at the next five or 10 years, Costco is still a stock that can generate good returns for you. It has a lot of growth opportunities to pursue internationally, especially in China where it has been opening new locations this year.

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

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $338,855!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $47,306!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $486,462!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 16, 2024

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.