Costco’s stock is near all time heights but there may be trouble ahead

Costco Wholesale (COST 1.59%? Has routinely been a top retail portfolio to own. It comes out of an excellent performance in 2024 as its shares rose almost 39%. And there is good reason for that as the company has continued to place strong, resistant numbers of growth, even when other retailers fought due to rising costs.

But the problem is that with the stock that is rising fast and now deals with an inflated valuation, near its high time, it could be mature for a fall. And there may be a greater headwind threatening that could give investors a reason to consider selling the stock sooner than later.

Costco Teamsters Union authorizes a strike

Last week, Costco Teamsters, a trade union of 18,000 employees, voted for a strike if a new contract has not been reached until the current expires on January 31. It represents a little more than 8% of workers Costco hiring in the United States, and it can affect more than 50 stores across the country.

There are a few possible consequences from here.

The first is the obvious influence this can have on daily operations. While 8% of its workforce may not sound significant, Costco’s warehouse is busy, and even a modest decrease in workers could have a negative impact on the experience of customers and affect sales.

There is also the potential damage this can do the company’s image; Costco is often seen as a company that takes care of its workers and offers competitive wages and benefits. A long -lasting strike with a significant part of its American workforce could undermine this view and may have surter some investors in the company along the way.

An expensive valuation means investors do not expect any hiccups

Costco’s stock, given its high valuation, also makes it vulnerable to sales if there are problems. The stock is dealing with a huge 56 times its rear earnings and is effectively priced to perfection. Even without the possible headwind of a labor disorder that affects the business in the short term, I would argue that it is overpriced in view of its modest single -digit growth rate.

Cost PE ratio Data of Ycharts

Retail investors clearly love Costco’s brand and are willing to pay a high multiplum for it. But this is still a company that generated only 7.5% revenue growth in the last quarter (period ending November 24, 2024).

It is a good business and there is much more growth for Costco in the future, but investors pay an obscene multiple for it right now. Not only can it mean limited returns in the short term, but it can also make the stock vulnerable to a sale. If this labor turmoil lasts in a long stretch, it can dampen.

Costco’s stock is overpriced and a fall may be due

I am not too busy with Costco’s work problems, as this is question that all retailers have to tackle at some point, whether or not they are seen as good companies. And this is not something that should weigh the company negatively in the long term.

What is more problematic is the valuation of the stock. Although Costco is a good business to invest the II long time, it does not mean that the stock is worth buying at any cost. Investors should consider the cost of missing an investment because money is bound in a less than optimal. On such a massive multiple, a lot of growth is already priced to Costco’s stock, which could result in modest returns for investors in the future.

While Costco may be a big business, the stock is simply too expensive to make it worth buying right now and a correction can be around the corner, no matter how the current work problems play out. There are many other, more attractive prices growth stocks out there that investors can add to their portfolios.