Costco Stock at $892: Here's What History Says Comes Next

Most of the market's attention has gravitated to the artificial intelligence (AI) boom. But Costco Wholesale (NASDAQ: COST) is out to prove that sizable wealth can be made in boring industries. Investors don't have to just stick to the technology sector.

In the past decade, shares have risen 486% (as of Sept. 17). Including dividends, they have generated a total return of 594%. The market has soured on the retail stock since May, as it has fallen 18% below its peak.

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Costco now trades at around $892 per share. Investors might be inclined to buy the dip in a perennial winner. Here's what history says comes next.

Despite trading well off its all-time high, Costco remains an expensive stock. It currently trades at a price-to-earnings (P/E) ratio of 44.9. By comparison, the S&P 500 index carries a 23.2 P/E multiple. Costco is at a 94% premium to the benchmark.

Betting on the AI revolution has been a popular way to make money in recent years. The dominant AI stock is Nvidia . It trades at a P/E ratio of 27.8. And its net income has skyrocketed at a compound annual rate of 2,415% over the past five years, astronomically higher than the 80% pace that Costco registered.

The warehouse club operator is pricier than arguably the most prosperous business in the world today, Nvidia. This might come as a shocking realization.

The last time Costco shares traded at a P/E multiple of 44.9 was at the start of 2024. Over the following 12 months, the stock price surged 39%.

On the surface, this is an encouraging data point that might indicate the coming year will result in a huge return for shareholders. Investors shouldn't jump to any conclusions about this single sample, however, as it looks at a very short time horizon. In the market, anything can happen over a one-year period, especially as investor sentiment is always changing.

When evaluating an investment candidate, the ideal situation is to buy a high-quality business trading at a cheap valuation. We already know that Costco does not pass the test when it comes to the latter criterion.

But what about the quality test? Here's where the company stands out. Costco is an outstanding business. There are three variables that support this argument.

The company has developed a powerful cost advantage. Its colossal scale, as shown by third-quarter (ended May 10) net sales of $69.2 billion, makes it one of the largest retailers in the world. But because Costco deliberately caps the number of unique items it sells in its stores, it is probably the single biggest buyer of merchandise from its suppliers.