Should You Buy, Hold or Sell Costco Stock After Q3 Earnings?

Costco Wholesale Corporation COST reported its third-quarter fiscal 2025 results last Thursday after the closing bell, sparking fresh debate among investors about the stock's future direction. As a dominant player in the retail sector, Costco has long been known for its stability and strong customer base, even in the face of broader economic headwinds. Now that its latest earnings are out, investors are contemplating whether to increase their stake, hold tight to their current investments or sell off shares in response to new data and market trends.Breaking Down Costco’s Q3 PerformanceShares of Costco have risen 4.6% following its third-quarter earnings release, reflecting the positive market response to the company's strategic initiatives and operational efficiencies. The growth in global footprint, robust membership expansion and commitment to delivering value at competitive prices have reinforced Costco’s appeal as a resilient, long-term investment. Costco’s top and bottom lines surpassed the Zacks Consensus Estimate and increased year over year. The company also registered decent comparable sales growth during the quarter.  (Read: Costco Q3 Earnings Beat Estimates, E-Commerce Comp Sales Rise)The company's ability to generate strong comparable sales across regions highlights its effective pricing strategy and member loyalty. Comparable sales, excluding gasoline prices and foreign exchange impacts, rose 8%. In the United States, comparable sales increased 7.9%, while Canada and Other International markets saw gains of 7.8% and 8.5%, respectively. Costco ended the quarter with 79.6 million paid household members, up 6.8% from the prior year. Executive memberships, a more profitable category for Costco, grew 9% year over year to reach 37.6 million, now accounting for 47.3% of all paid members and driving 73.1% of worldwide sales. The company's commitment to value and quality has fostered strong loyalty among members.How Consensus Estimates Stack Up for Costco Post Q3 EarningsOver the past seven days, analysts have increased their estimates for the current fiscal year by 6 cents to $18.02. For the next fiscal year, the Zacks Consensus Estimate has risen by 14 cents to $19.90. These estimates indicate expected year-over-year growth rates of 11.9% and 10.4%, respectively. Image Source: Zacks Investment ResearchCostco’s Membership Strength Meets Digital ExpansionCostco’s resilient business model, centered around a membership-based structure, continues to be a major growth driver. The company’s high membership renewal rates, coupled with its efficient supply chain management and bulk purchasing power, ensure competitive pricing. Importantly, the renewal rate remained extremely strong at 92.7% in the United States and Canada and 90.2% worldwide. This robust model has allowed Costco to thrive, even during economic downturns.Members pay an annual fee for access to Costco's warehouses, where they can purchase goods at significant discounts. This model not only ensures a steady inflow of revenues but also creates a sense of exclusivity and value among its members. Membership fee income rose 10.4% year over year to $1,240 million in the third quarter of fiscal 2025. The recent membership fee increase contributed about 4.6% to membership fee income in the quarter.Costco’s ability to evolve with changing consumer preferences has also played a vital role in its expansion. The company adjusts its product mix to include both everyday essentials and unique, high-demand items — a strategy that strengthens its appeal across diverse customer segments. Through data-driven market analysis and an adaptable merchandising approach, Costco has steadily expanded its presence in both domestic and international markets.The company plans to open 27 warehouses in fiscal 2025, including three relocations. This includes 15 new locations in the United States, two in Canada and seven in international markets, highlighting its strong domestic and global footprint. Global expansion remains particularly promising as Costco deepens its presence in high-growth regions and continues to build brand recognition abroad.In parallel, Costco is investing aggressively in digital transformation to support growth. E-commerce comparable sales rose 14.8% in the third quarter, reflecting growing online demand. Costco Logistics saw a 31% increase in items delivered, driven by the success of big-ticket product categories. Additionally, initiatives like Costco Next — a curated online marketplace — continue to gain traction. The recent launch of a Buy Now, Pay Later program in partnership with Affirm is another step toward enhancing convenience and flexibility for members.Costco Walks a Tightrope in a Shifting Retail LandscapeCostco's impressive sales figures are part of a larger retail picture where competition is intensifying. Rivals like Ross Stores, Inc. ROST, Dollar General Corporation DG and Target Corporation TGT are investing in expanding their capabilities and enhancing customer experience. Moreover, margins remain a critical area to monitor, with potential concerns stemming from any deleverage in the selling, general and administrative rate. Additionally, foreign exchange volatility and potential tariffs on key imports create uncertainty. Meanwhile, consumer spending is shifting toward essentials, with discretionary spending seeing weaker demand.Valuation: Is Costco Stock’s Price Justified?Costco stock has been a standout performer, rallying 26.4% over the past year and outpacing the industry's 13.8% gain. This strong performance reflects growing investor confidence in Costco’s resilient business model. COST has outperformed key retail peers, with shares of Ross Stores, Dollar General and Target declining 0.2%, 16%, and 35.1%, respectively.Image Source: Zacks Investment ResearchHowever, the stock is trading at a significant premium to its peers. Costco's forward 12-month price-to-earnings ratio stands at 54.42, higher than the industry’s ratio of 34.39 and the S&P 500's 21.82. Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 12.25), Ross Stores (22.44) and Dollar General (19.48).  Image Source: Zacks Investment ResearchInvestors should evaluate whether Costco's growth trajectory justifies its premium valuation while considering the associated risks, particularly in a changing macroeconomic environment. For those with a long-term investment horizon, Costco's historical performance and strategic initiatives may present a compelling case for holding the stock.Is Costco Stock Worth Holding Post Q3?Costco’s third-quarter performance underscores its resilient business model, strong membership growth and expanding global footprint. With aggressive store expansion and e-commerce growth, the company is well-positioned for sustained long-term gains. However, its premium valuation compared to peers, foreign exchange fluctuations and tariff risks remain potential challenges. While current investors should hold the stock, new investors should wait for a pullback before buying. Costco currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Target Corporation (TGT): Free Stock Analysis Report Dollar General Corporation (DG): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis Report Ross Stores, Inc. (ROST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks