Costco reports $63.2 billion revenue, raising valuation concerns

In 2025, Costco's fiscal Q3 concluded on May 11, demonstrating significant financial performance. During this period, the company reported $63.2 billion in revenue and $2.5 billion in operating profit, highlighting its strong operational capabilities and resilience amid inflationary pressures on consumer budgets. Costco's value-oriented membership model has resonated well with shoppers, as evidenced by a 7% year-over-year increase in sales, significantly outpacing the overall U.S. retail industry's growth of just 3%. Despite this robust performance, there are aspects of caution regarding Costco's stock valuation. Currently trading at 55 times earnings and 59 times free cash flow, investors are facing a cash flow yield of only 1.7%. The company's strong growth prospects are juxtaposed against its elevated valuation metrics, which could prompt investor scrutiny. Costly valuations have historically led to volatile stock prices, as seen during financial crises where shares plummeted 49% in 2008 and 20% in early 2020 amid the Covid-19 pandemic. Moreover, Costco’s high valuation is attributed to its solid business model, with comparable-store sales increasing by 8% year-over-year and e-commerce sales climbing nearly 15%, demonstrating the company's effective adaptation to market demands. The sourcing of two-thirds of its merchandise domestically and limited exposure to trade risks also fortifies Costco's standing. Therefore, its scale enhances pricing power crucial for sustaining the premium valuation. However, if growth trends shift towards mid-single digits, both investor confidence and the stock's valuation multiple may face pressure in the future. Overall, Costco continues to be recognized as an exceptional retail operator. Still, the current market conditions suggest that investors should remain informed about potential challenges ahead that could impact the company's impressive growth trajectory.