Costco makes money, not mark prices, and shoppers will love it when spending cautiously.
If the tariffs raise prices, it has an advantage over other retailers because it has the ability to absorb them without passing them over to shoppers.
Costco stock is expensive.
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The market simply cannot get enough Costco Wholesale (NASDAQ: Fees) Stocks and economic volatility are just helpful. Costco can reliably perform well in any environment and tend to do well in recessions.
Costco continues to achieve spectacular operating results as tariffs put the market in turmoil and the company calculates its potential impact into its forecast. Will it just get better? Let's see if now is a good time to buy Costco stock.
Costco has a differentiated, if not completely unique business model, with annual fees available but offers the lowest price for rocks. It tends to attract a wealthier population, willing to pay for the privilege of shopping in multiple global warehouses at Costco, and it keeps them coming in to make the most of their paid membership. It's a win-win model that creates consumer loyalty and keeps high traffic, and since Costco makes a lot of money from annual fees, it can limit price tags and can still generate incredibly high profits.
This works in any situation, but you often see the biggest results when times are tough and consumers are trying to save money. Instead of shopping in expensive stores, they spend more on weekly or monthly Costco runs.
Costco's latest operation results indicate this working condition. In the second quarter of fiscal 2025 (as of February 16), sales increased by 9.1% year-on-year, and comparable sales (Comps) rose by 8.3%. Earnings per share rose from $3.92 last year to $4.02 this year. Costco is one of the few companies offering monthly updates, and March is another continuation of its positive trend. Sales rose 8.3%, and COMP rose 7.5%.
E-commerce sales grew 20.9% in the first quarter and it has become a major driver of Costco's growth as it tends to be a digital advantage. For example, it adds a tool for users to see if their local repository has the desired product. It is also increasing the share of large and bulky items, which is more suitable for its logistics network.
Member metrics are also explained. The renewal rate for the U.S. and Canada was 93% in the first quarter and 90.5% worldwide. Paid family members increased by 6.8% year-on-year, while executive members paid $65 in standard annual membership fees, up 9.1%.
It also has a leg as its model supports low profit margins. Management hasn't painted the potential impact of tariffs, but CEO Ron Vachris said: "We're ready. Our people are able to lower prices well and delay our cost increase in progress." Shoppers and investors know that this is true and if customers raise prices elsewhere, it will provide Costco with greater volume and sales as customers make more shopping there.
Costco stock has grown 11% this year, and S&P 500 4%. Investors have been flocking to safe stocks and today looks safe due to their general resilience and performance under pressure.
It also paid dividends that just raised 12% to $1.30. Although yields are not spectacular, they are growing and reliable. It has also been paying regular special dividends, most recently at the end of 2023, which is high, making dividend plans attractive to passive income investors.
The problem with Costco stock is that it is very expensive. As it hovers around 40 times behind sales 12 months, I have called it expensive, and today's valuation has surged to 60. This is a very advanced benefit. Can Costco be carried? Obviously, the market thinks so. This is not a typical young growth stock you have astronomical valuation. This is a safe, sure stock with a lower risk. As far as I've been warning Costco's expensive price tags, it continues to grow higher.
So how should investors play it? If your vision is long, you can immediately gain a place in Costco stock. It is expected to maintain momentum as it keeps prices low in the new tariff environment. Remember, it makes money on membership, which is a source of income that is often seen. Even if the momentum eventually fades away, this doesn't necessarily have to be over time, and you should benefit from owning Costco stock.
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Jennifer Saibil has no position in any of the stocks mentioned. Motley Fool has a place and recommends Costco wholesale. Motley Fool has a disclosure policy.
Costco stock thrives when other stocks fall. Is it time to buy it now? Originally published by Motley Fool