Note: Costco FY’24 concluded on September 1, 2024.
In an ever-changing retail environment, Costco’s (NASDAQ: COST) has become a symbol of stability and success, fueled by its unwavering commitment to revenue growth and customer satisfaction. The warehouse giant’s stock has risen 5% year-to-date, surpassing the S&P 500’s decline of 2%. Despite increasing living costs, Costco’s value-driven approach has resonated with consumers, as shown by its 9% year-over-year sales growth in January 2025, outpacing the U.S. retail sector’s 4% sales growth.
But Here’s the Catch: Even Costco is not immune to economic downturns. In 2022, its stock price dropped by as much as 30% over just a few quarters, highlighting its sensitivity to market fluctuations. This historical trend raises concerns that Costco’s current share price of around $940 could potentially fall to $650 if similar conditions occur again. However, for investors seeking less volatility than individual stocks, the Trefis High-Quality portfolio provides an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
Why Is It Relevant Today?
Once again, although Costco is promising significant developments with its plans for international expansion, broader product offerings, and exclusive membership rewards, a greater risk to the U.S. economy must be taken into account.
Costco’s business model relies heavily on international trade, with roughly one-third of its U.S. sales coming from imported products. Importantly, the company’s exposure is diversified, with fewer than 20% of its imports coming from China, Mexico, and Canada. The proposed 25% tariff on Canadian and Mexican imports poses a significant risk, potentially increasing grocery prices and causing shortages of essential items in the U.S. Additionally, tariffs on Chinese imports might also raise the prices of electronics and furniture sold at Costco.
Although inflation concerns have somewhat eased, they still persist. Trump’s aggressive policies on tariffs and immigration have revived worries about a potential return of inflation. This uncertainty, combined with the U.S. economy’s susceptibility to a downturn, raises the possibility of a recession. See our analysis here on the macro picture. Furthermore, the global geopolitical environment has become increasingly unstable, characterized by the ongoing Ukraine-Russia conflict, escalating trade tensions, and strained relationships with traditional allies such as Canada, Mexico, and Europe. These factors present significant risks, underscoring the importance of closely monitoring the macroeconomic outlook.
How Resilient Is COST Stock During a Downturn?
COST stock has been more resilient than the benchmark S&P 500 index during some recent downturns. While investors remain hopeful for a soft landing for the U.S. economy, how severe could a future recession be? Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and after the last six market crashes.
Inflation Shock (2022)
• COST stock dropped 30.6% from a high of $600.04 on 8 April 2022 to $416.43 on 20 May 2022, compared to a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 7 December 2023
• Since then, the stock has risen to a high of $1,076.86 on 13 February 2025 and is currently trading at around $940
COVID Pandemic (2020)
• COST stock declined 13.6% from a high of $324.08 on 20 February 2020 to $279.85 on 12 March 2020, compared to a peak-to-trough drop of 33.9% for the S&P 500
• The stock fully rebounded to its pre-Crisis peak by 9 July 2020
Global Financial Crisis (2008)
• COST stock dropped 48.5% from a high of $74.66 on 8 July 2008 to $38.44
Protecting Wealth
In summary, it does not help that Costco’s stock remains expensive. Its current valuation of 58 times last year’s earnings seems overextended, far exceeding the pre-pandemic price-to-earnings range of 25 to 30. Moreover, Costco’s Revenue growth has decelerated, with FY 2024 recording the slowest growth in seven years. Thus, while many appreciate Costco for its low prices and convenient services, ask yourself: will you hold your Costco stock now, or will you panic and sell if it begins to decline to $800, $700, or even lower?
Holding onto a falling stock is never simple. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies delivered positive returns during the 2008-09 period when the S&P fell by more than 40%. Empirical has integrated the Trefis HQ Portfoliointo this asset allocation framework to offer clients improved returns with reduced risk compared to the benchmark index, as shown in the HQ Portfolio performance metrics.
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