Meet the Monster Stock That Continues to Crush the Market

There's a stock that you've likely heard of but ignored, despite its rally over the years. Many investors avoid its industry, which is known for meager profit margins and intense competition. Even the biggest retailers have trouble generating consistent earnings growth, after all. But this wholesale giant's stock has trounced the market over the last one-year, three-year, and five-year periods, and its business is showing no signs of slowing in 2025.

The stock in question is Costco (NASDAQ: COST), a company worth considering for your portfolio even following its recent surge.

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High investor returns

Costco's stock has been a winner for shareholders who made their investments at almost any time in the past decade. Shares more than doubled in the past three years (ended in early February), compared to the 35% gain in the S&P 500. Costco's stock is up 240% in the past five years, easily beating the market and leaving peers like Walmart and Target behind. The 10-year picture is even better. Owning Costco since early 2015 would have given you a 600% return, compared to the market's 200% rally.

Those gains don't include dividends, either, which have been generous even if unpredictable. Costco has a habit of issuing special dividends every few years that boost its effective yield well above the stated 0.5% rate. The chain's last big windfall to investors was a $15 per share payout that hit their accounts in early 2024.

Rarely cheap

You might look at Costco's valuation and be turned off by the stock's high price. Investors are paying 62 times earnings for this stock today, while they could own Walmart for 42 times earnings or Target for a price-to-earnings of just 14. It's the same story on sales, as Costco's price-to-sales ratio is approaching 2, almost double the record that investors saw in late 2021.

Keep in mind that Costco's stock has rarely been cheap on those valuation metrics. That's understandable due to its habit of reporting market-leading growth and stable, membership-driven profits. Investors saw evidence of that strong sales pace continuing in early February, when the chain revealed that comparable-store sales were up 7.5% in January, a slight acceleration from the prior month's spike.

Worth the premium?

Costco's next quarterly report is due out in early March, and most Wall Street pros are looking for sales to rise by about that same 8% pace. Earnings should improve to $4.09 per share from $3.92 per share a year earlier. That 4% profit boost might sound underwhelming, given that Costco recently hiked its membership fees. Yet management knows that price leadership is the surest path toward long-term market share gains.

By investing almost all excess earnings toward keeping prices low, Costco continues to satisfy its members, driving more store visits and higher average spending per trip. Add on a booming e-commerce segment, and you've got a recipe for outsized revenue gains from here.

Having recently crossed the $1,000 mark, Costco shares again seemed priced for much faster growth than the high single-digits that investors have seen in recent quarters. Yet the stock has earned its premium valuations over the years through a mix of growth and dividend income. Sure, there are much cheaper options in the retailing space right now. But buying Costco gives you a piece of a market leader that can expand sales and earnings through a wide range of selling conditions. History suggests that it's worth paying up for those valuable competitive assets.

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Demitri Kalogeropoulos has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.