The market just can’t get enough of Costco Wholesale (NASDAQ: COST) stock, and economic volatility is only helping. Costco is reliable for strong performance in any environment, and it tends to do very well when there’s a recession.
As tariffs keep the market in turmoil and companies calculate their potential effects into forecasts, Costco continues to churn out spectacular operating results. Is it only going to get better? Let’s see if now is a great time to buy Costco stock.
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Costco’s recession-proof model
Costco has a differentiated, if not completely unique, business model that charges annual fees but offers rock-bottom prices. It tends to attract a more affluent crowd that is willing to pay for the privilege of shopping at Costco’s multiple global warehouses, and it keeps them coming in to make the most of their paid memberships. It’s a win-win model that creates consumer loyalty and keeps traffic high, and because Costco makes so much money from the annual fees, it can cap price markups and still generate incredibly high profits.
This works under any conditions, but you often see the greatest results when times are tough and consumers are trying to save money. Instead of shopping at more expensive stores, they’ll spend more on their weekly or monthly Costco runs.
Costco’s most recent operating results demonstrate how well this works. In the 2025 fiscal second quarter (ended Feb. 16), sales increased 9.1% year over year, and comparable sales (comps) were up 8.3%. Earnings per share rose from $3.92 last year to $4.02 this year. Costco is one of few companies that provide monthly updates, and March was another continuation of its positive trends. Sales were up 8.3% and comps were up 7.5%.
Image source: Getty Images.
E-commerce sales increased 20.9% in the first quarter, and it has become an important growth driver for Costco as it leans into its strengths in digital. For example, it added a tool for users to see if their local warehouse has products they want. It’s also growing its share of big and bulky items, which are a more cost-efficient fit for its logistics network.
Membership metrics were just as telling. U.S. and Canada renewal rates were 93% in the first quarter, and worldwide it was 90.5%. Paid household members increased 6.8% year over year, and executive members, who pay double the standard annual membership fee of $65, increased 9.1%.
It also has a leg up as retailers deal with tariffs because its model supports low margins. Management didn’t whitewash the potential impact of tariffs, but CEO Ron Vachris said: “We are prepared. Our people are very well equipped to lower prices and defer any cost increase that come our way.” Shoppers, and investors, know this is true, and it could result in greater volume and sales for Costco as customers do even more of their shopping there if tariffs raise prices elsewhere.
The market’s down, but Costco is up
Costco stock is up 11% this year while the S&P 500 is down 4%. Investors have been flocking toward safe stocks, and with its general resilience and performance under pressure, it’s looking quite safe today.
It also pays a dividend that was just raised 12% to $1.30 quarterly. Although the yield isn’t spectacular at 0.47%, it’s growing and reliable. It has also been paying a periodic special dividend, most recently in late 2023, that’s quite high, making the dividend program attractive for passive income investors.
The issue with Costco stock is that it’s extremely expensive. I was already calling it expensive when it was hovering near 40 times trailing-12-month sales, and today that valuation has ballooned to near 60. That is one seriously premium earnings multiple. Can Costco carry it? Apparently, the market thinks so. This isn’t your typical young growth stock with an astronomical valuation. It’s a safe, established stock with low risk. And for all I’ve been cautioning about Costco’s expensive price tag, it continues to go higher.
So how should investors play it? If you have a long time horizon, you can take a position in Costco stock right now. It’s poised to sustain momentum as it keeps its prices low in the new tariff environment. Remember, it makes its money on memberships, and that’s a recurring revenue stream. Even if momentum eventually tapers off, which it won’t necessarily, over time you should benefit from owning Costco stock.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
