Shares of Costco Wholesale (NASDAQ: COST) experienced a decline today, despite the company reporting robust third-quarter results. Investors appeared to believe that the stock was already fully valued prior to the earnings report, following a substantial increase over the past year.

As of 2:38 p.m. ET, the stock was down 2.6%, reaching a decrease of 3.4% earlier in the trading session. Despite this setback, Costco's quarter showcased commendable performance.

During the third quarter, Costco delivered solid results with comparable sales, adjusted for fuel and currency exchange, rising by 6.5%, while total revenue saw an impressive 9.1% increase, reaching $58.5 billion. The e-commerce segment experienced significant growth, with sales rising by 20.7%, highlighting Costco's progress in the online market.

Moreover, Costco witnessed a significant surge in profits, with gross margin improving from 10.3% to 10.8%. The company's membership fees, which had a direct impact on the bottom line, also rose by 8% to $1.12 billion. Consequently, operating income soared by 31% to $2.2 billion, while earnings per share increased by 29% to $3.78, outperforming estimates of $3.70.

While Costco does not provide future guidance, the third-quarter results left little room for criticism. The company's ability to execute efficiently and capture market share remains strong. However, with a relatively high price-to-earnings ratio of approximately 50, the stock is deemed expensive, particularly for a retailer. This valuation implies that even a 30% profit growth may not be sufficient to drive its share price higher.

Additionally, sustaining this growth rate over the long term might prove challenging for Costco, considering the constraints on sales growth relating to the opening of new stores and expanding sales at existing locations. Consequently, despite its solid competitive advantage, the stock may be due for a pause.

Investors should carefully consider whether or not to invest in Costco Wholesale at this time. The Motley Fool Stock Advisor analyst team recently unveiled their selection of the ten best stocks for investors to purchase presently. However, Costco Wholesale did not make the cut. These chosen stocks are projected to deliver remarkable returns in the coming years, as exemplified by previous recommendations such as Nvidia in April 2005, which would have yielded a return of $677,040 from a $1,000 investment*.

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Jeremy Bowman, the writer of this article, has no holdings in the mentioned stocks. The Motley Fool, however, holds positions in and recommends Costco Wholesale. The Motley Fool maintains a disclosure policy.

*Based on the Stock Advisor returns as of May 28, 2024.