Can Buying Costco Stock on the Dip Help Make You a Millionaire?

Investors aren't fans of uncertainty. And there has been a lot of uncertainty rattling the market in the past couple of weeks, mainly related to the tariff announcements made by the new Trump administration. As a result, the S&P 500 trades around 9% off its peak from February (as of March 18).

Even some of the best businesses haven't been spared. Just look at Costco Wholesale (COST -0.98%), whose shares have generated a wonderful 224% total return just in the past five years. This top retail stock is 16% below its record, which was established in February.

I'm sure investors are looking at Costco as a potential buy-the-dip candidate right now. But can the membership-only warehouse club help make you a millionaire?

Driving comps growth

One of the most important metrics for any retail enterprise is same-store sales (comps) growth. Companies that can consistently grow this figure, which measures the rise in revenue from stores typically open at least 12 months, are doing something right by boosting the productivity of each individual location by a combination of increased foot traffic and higher ticket amount.

Here's where Costco stands out. For its fiscal 2025 second quarter (ended Feb. 16), the business reported a comps increase of 6.8%. This continues a long-running streak of comps growth.

Over the past five years, a period that included the onset and depths of the pandemic, supply chain bottlenecks, inflationary pressures, higher interest rates, and the current uncertain economy, Costco's comps kept increasing.

Driving regular comps growth has propelled profit gains as well. In the past decade, the company's diluted earnings per share (EPS) increased at a compound yearly rate of 11.5%. And between fiscal 2024 and fiscal 2027, Wall Street analysts believe EPS will rise at the same annualized pace of 11.5%.

Minimal threat of disruption

Costco has made for a great investment in the past because the business proved to be durable. In other words, it's positioned so well that investors don't really need to worry about it being disrupted anytime soon.

The company's scale is key to its success. It reported $62.5 billion in net sales in the second quarter, making it the third biggest retailer on the planet. And the average Costco warehouse carries about 4,000 stock-keeping units, significantly less than typical supermarkets. As a result, the company has a huge advantage when buying merchandise from its vendors because it can obtain favorable pricing.

Those cost savings are transferred to its members with every-day low prices, and they love this deal. Costco ended the second quarter with 78.4 million membership households. That was up 6.8% year over year, with a renewal rate of 93% in the U.S. and Canada.

It's probably not difficult to figure out what might be one of Costco's top rivals: Amazon and its popular Prime membership. But despite the tech juggernaut's unbelievable success over the past decade, Costco has continued to grow its membership base, revenue, and EPS on a consistent basis, demonstrating it's a consumer favorite and that in-person shopping isn't going anywhere.

Should you buy Costco stock?

Had you invested $33,000 in Costco exactly 20 years ago, you would be sitting on a $1 million portfolio balance right now. Investors are probably wondering if buying the stock today on the dip can set them up for a similar outcome in the future.

I'm not confident that history is going to repeat itself. Costco shares trade at a very expensive valuation: a price-to-earnings ratio of 52.6. That's way too steep a price for this business, regardless of how high-quality it is.

Costco isn't going to make you a millionaire. But investors should keep a close eye on the company and wait until the valuation drops further before buying the stock.