Highly valued or not, Costco (NASDAQ: COST) can continue to rally in 2025. The stock is pricey, trading at 55x its current year earnings estimate. Still, it factored in the growing cash balance, the likelihood of special dividends, and the robust growth outlook. The analysts forecast earnings will more than double over the next decade, putting this stock in a more reasonable valuation relative to the long-term outlook. Assuming the analysts are right, Costco trades at less than 25x its forward earnings outlook, and the trends suggest they’re being cautious. Highlights from 2024 include market share gains, industry-leading growth, and outperformance tied to volume.
Regarding the outlook for special dividends, Costco is a cash flow powerhouse generating ample free cash flow to sustain operations, pay a regular dividend, offset share-based compensation with buybacks, and build its cash balance quarterly. The critical detail from FQ1 2025 is that the cash balance increased by 10% YTD and is nearly $11 billion.
