Lululemon is suing Costco over the wholesale retailer’s athletic-wear, which it claims is confusingly similar to its “path-breaking” leggings, jackets and sweatshirts. According to the lawsuit, filed Friday in the U.S. District Court for the Central District of California [PDF], these items violate trademark law because “some customers incorrectly believe these infringing products are authentic Lululemon apparel.”

The items at the center of the lawsuit include Lululemon’s popular “Scuba” hoodies and sweatshirts, its “Define” jackets, and “ABC” stretch pants — that resemble khakis pants — for men. 
Lululemon’s Scuba hoodie retails for $118, while its Define jacket sells for $128. The ABC pants cost $128.
According to Lululemon, Costco’s infringing products include: 
Danskin Ladies Half-Zip Hoodie
Danskin Half-Zip Pullover
Jockey Ladies Yoga Jacket
Spyder Women’s Yoga Jacket
Hi-Tec Men’s Scuba Full Zip
Kirkland 5 Pocket Performance Pant

CBS News notes that Costco’s item have already been widely noted for their “verisimilitude” and hashtags such as #luludupe are in use online. The Washington Post recently ran an article about them, cited in the lawsuit, titled “Is that hoodie Lululemon or a Costco dupe?”

A look through these items and it hits you how plain and generic they all are. It comes down to the exact cut of a pocket seam, the precise placement of belt loops, the exact shade of gray…

Previously:
• Marvel and DC lose trademark on ‘superhero’
• Nintendo just lost a trademark fight with a tiny Costa Rican grocery store
• Crayola receives trademark on the earthy, leathery, clay-undertoned scent of crayons

After reaching multi-year lows in 2024, Dollar General (DG 0.18%) and Dollar Tree (DLTR 1.17%) are staging epic recoveries in 2025.

Year to date (YTD) at the time of this writing, Dollar General has surged a staggering 49.5% and Dollar Tree is up 25.2%, compared to a mere 2.1% gain in the S&P 500 (SNPINDEX: ^GSPC).

Even with those gains, both stocks have drastically underperformed the S&P 500 and larger retailers like Walmart (WMT -1.68%) and Costco Wholesale (COST -1.12%) over the last few years.

Here’s what’s driving the rebound in discount retailers, and whether investors are better off with a 50/50 split of Dollar General and Dollar Tree or Walmart and Costco.

Image source: Getty Images.

Signs of improvement

The rebound in Dollar General and Dollar Tree provides a good lesson on the importance of expectations and valuation.

Going into this year, expectations for the discount retailers were as low as they could be. Both companies were struggling to offset inflationary pressures with price increases.

In 2021, Dollar Tree upped the base price of its products to $1.25, which cushioned profits but strained demand. It’s also worth mentioning that Dollar Tree is selling Family Dollar in the second quarter of 2025 for about $1 billion — a significant loss compared to the roughly $9 billion purchase price in 2015.

Frequent customers of Dollar General and Dollar Tree can be more sensitive to inflation and overall higher living costs than retail outlets that aren’t so value-focused. As a result, both companies rely on sales volume to offset their razor-thin margins. The business model can work well when consumer spending is strong, but it can backfire when people tighten their purse strings.

As you can see in the following chart, Dollar General continued boosting sales, but margins are near a 10-year low, reflecting pricing pressure. Dollar Tree’s margins are holding up, but its revenue is down significantly due to store closures and demand pressures.

DG Operating Margin (TTM) data by YCharts.

Despite lackluster results, recent financials for both companies show signs of improvement. Dollar General grew sales and earnings in its recent quarter. Dollar Tree got a jolt from improving results and potential cost savings from the Family Dollar spin-off.

Results for Dollar General and Dollar Tree weren’t great, but because expectations were so low and both stocks were so beaten down, the stage was set for an epic rebound, even if results were mediocre. However, some investors may prefer to go with higher-quality names like Walmart and Costco.

Delivering value and driving customer loyalty

Walmart and Costco have ultra-razor-thin margins, often lower than those of Dollar General and Dollar Tree. But the key difference is that Walmart and Costco deliver masterfully on their value propositions to customers.

Walmart caters to value-focused customers, just like dollar stores. Yet, it has grown sales steadily and sustained decent margins despite pullbacks in consumer spending, because it can go toe-to-toe on price with just about any brick-and-mortar retailer or e-commerce platform. Additionally, Walmart has built out other shopping options, like pickup, delivery through Walmart+, and more.

Similarly, Costco can afford to pass along value to customers on merchandise sales because it generates steady cash flow from annual membership rates. Costco makes the majority of its net income from membership fees, and profits very little from merchandise sales. Customers are incentivized to shop at Costco as much as possible to justify the membership, and Costco gives them good deals in return. Costco could charge more and boost near-term profits, but management is laser-focused on the brand’s strength and long-term customer loyalty.

Priced to perfection

Walmart and Costco are undeniably better businesses than Dollar General and Dollar Tree, but their valuations have reached sky-high levels. Even on a forward price-to-earnings (P/E) ratio basis, Costco and Walmart sport more expensive valuations than all of the “Magnificent Seven” stocks (except Tesla), whereas Dollar General and Dollar Tree have forward P/E ratios under 20.

COST PE Ratio (Forward) data by YCharts.

Over the long term, quality is more important than present-day valuation, because a company that consistently improves earnings can grow into its valuation. But if a company’s stock price keeps increasing faster than its earnings rise, its valuation will remain inflated. This dynamic has been at play with Walmart and Costco, which have seen their P/E ratios balloon far above their historical averages due to their stock prices outpacing earnings growth.

What’s more, both stocks no longer have serviceable dividend yields because their stock prices have outpaced their dividend growth rates. Walmart yields just 0.9% and Costco yields 0.5%. Dollar General sports a decent yield of 2.1%, and Dollar Tree has never paid a dividend. Granted, Costco occasionally pays special dividends when its cash on the balance sheet reaches a comfortable level. But even during special dividend years, like in 2024 and 2020, Costco still only yields around 2% to 3%.

The better buy now

If I had to pick, I’d go with a 50/50 split of Dollar General and Dollar Tree over Walmart and Costco simply because their valuations are so much lower, and Walmart and Costco aren’t growing quickly enough to justify their high valuations. At that valuation level, investors are arguably better off buying a top growth stock like Microsoft, which is expanding margins and consistently generating strong revenue growth.

Walmart and Costco are phenomenal companies, but a great company isn’t always worth investing in if its valuation is at nose-bleed levels — especially when faster-growing alternatives are available at reasonable multiples.

A sudden rush in demand for gold is reportedly forcing retail giant Costco (COST) to put restrictions on how much customers can buy at a time.

Costco’s 24-karat gold bars, which debuted in June of 2023, have seen historic demand amid all-time high prices and inflation concerns, reports Bloomberg.

A survey from Bloomberg estimated that about 77% of Costco locations across the US that sell bullion bars were out of stock by the first week of October 2024, even after receiving fresh stocks in the previous weeks. Since then, the price of gold has gone much higher, currently trading at $3,248 after hitting an all-time high of $3,500.

Now, Costco’s checkout page for its gold bars states,

“Limit of one Transaction Per Membership, with a Maximum of two Units Per 24 Hours.”

In April of last year, banking giant Wells Fargo estimated that Costco was seeing as much as $200 million per month in revenue from its gold bar sales alone.

Said Wells Fargo equity analyst Edward Kelly at the time,

“Our work suggests there has been significant interest given COST’s aggressive pricing and high level of customer trust… The accelerating frequency of Reddit posts, quick on-line sell-outs of product, and COST’s robust monthly eComm sales suggest a sharp uptick in momentum since the launch.”

In addition to gold, Costco is also selling silver and platinum bars to its customers.

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Costco Wholesale (COST -0.37%) is one of the most iconic and recognizable retailers in the world. Its massive warehouses are often packed with customers, and its treasure hunt experience inevitably leaves shoppers spending much more than they planned. That’s evident with the company’s strong and impressive growth over the years.

And with so much room to expand, especially in international markets, it’s hard to not like Costco as a long-term investment. But does it have enough upside to potentially turn a $25,000 investment into $1 million over the next 25 years?

Costco’s growth has been robust

What’s impressive about Costco’s business is that it always seems to do well. It generated fantastic numbers during the pandemic and even amid inflation. Whether consumers have been loading up on essentials, discretionary purchases, or trying to save money, there always seems to be plenty of traffic at its stores. The company has been able to consistently grow its top line over the past decade at a fairly high rate — close to double digits.

COST Operating Revenue (Quarterly YoY Growth) data by YCharts

The bulk of its warehouses, however, are still in North America; the United States, Canada, and Mexico account for 767 of its 897 warehouses. The company has been growing its presence in China, but with just seven warehouses there, it’s barely scratching the surface. And it’s the massive long-run opportunities in international markets that can make this a top growth stock to own for not only years, but decades.

Over the past 10 years, the stock has risen an impressive 520%. The one potential problem, however, is that its high valuation could make it difficult for it to replicate those types of returns in the years ahead.

The stock trades at a massive premium

Costco is a beloved business and stock, but to own a piece of it, you have to be prepared to pay a big premium. Today, it’s trading at more than 50 times trailing earnings. That’s expensive, given its single-digit growth rate. The danger when paying such a high multiple for the business is that sky-high expectations are priced in, and if the company doesn’t deliver, there could be a sharp drop in its share price.

COST PE Ratio data by YCharts

Investors have been paying an elevated multiple for the stock since the pandemic began and when its growth rate took off. But now as that growth rate is coming down and staying around more normal levels, I would expect to see the price-to-earnings multiple to also come down, which is why I wouldn’t be terribly optimistic that this can be a millionaire-making stock to hold, even over the long term.

Costco is a good buy, but investors should temper their expectations

While Costco has delivered some great gains for investors in recent years, for it to turn a $25,000 investment into $1 million, it would need to be a 40-bagger; its market cap would need to eventually reach $16.6 trillion. A lot can happen over 25 years, but I wouldn’t expect Costco to turn out to be 40 times more valuable than it is today, as it looks to be overdue for a sizable correction.

This is still a good stock to buy and hold, but investors should be careful not to assume that the stock’s impressive gains in recent years will continue for decades.

Costco (COST -0.95%) is hitting it out of the park right now despite the difficult retail backdrop. The company’s sales and earnings numbers are nothing short of impressive, thanks at least partly to an advantaged business model. But does all of this make the stock a buy right now?

What does Costco do?

Before getting into Costco’s financial performance, it is important to understand the business. From a big-picture perspective it is a retailer, but when you dig into the model there’s an important nuance. Indeed, Costco is a club store, which means customers pay a membership fee for the privilege of shopping in Costco’s stores. This changes the dynamic dramatically.

Image source: Getty Images.

In the fiscal first quarter of 2025, Costco generated roughly $2.2 billion in operating income. Membership fees generated nearly $1.2 billion in revenue. Membership fees don’t have material costs associated with them, so most of that revenue just falls down to operating income. And that means that over half of Costco’s operating income is directly attributable to the membership fees it collects.

The most important job Costco has is to keep its members happy since they are, effectively, an annuity-like income stream. With an over 90% renewable rate, the company is clearly doing that job well. But how does Costco achieve this? By offering good products at attractive prices. Those membership fees are helpful here, too, since that revenue allows the company to be aggressive (meaning it works hard to have low prices) when it comes to the prices it charges. Being an industry giant, with an over $460 billion market cap, helps there, as well, since it can be more demanding of its suppliers.

Costco is a differentiated, and attractive, business and it is performing very well right now.

Costco is hitting on all cylinders

The fiscal first quarter is the proof of Costco’s model. The top line grew an impressive 7.5% with same store sales up a huge 5.2%. Earnings per share came in at $4.04 per share, up from $3.58 in the same quarter of the previous year. This is a very strong showing, noting that store traffic rose 5.1%. That basically means that Costco’s membership fee-paying customers are happily coming back to buy even more from the company’s stores.

There is a very good reason to like Costco as a business. There’s just one problem for investors. Sometimes, as famed value investor Benjamin Graham liked to highlight, a good company can be a bad investment if you pay too much for it. It looks like Wall Street is well aware of how well Costco is doing today.

COST data by YCharts

There are different ways to look at this issue. Just from the price chart, Costco is within 5% of its all-time highs. That has pushed the dividend yield down toward the low end of its historical range. Both of these facts hint at an expensive stock.

Using more traditional valuation metrics, Costco’s price-to-sales and price-to-earnings ratios are both well above their five-year averages. That alone hints at a steep price, but there’s another little wrinkle. When you look at historical graphs and the P/S and P/E ratios, you see that both are also near the highest levels in the company’s history.

COST PS Ratio data by YCharts

Basically, when you examine Costco’s valuation you can only come away with one take — the stock is historically expensive. Yes, it is a good company, but it probably isn’t a good stock to buy right now.

Bide your time with Costco

Just because Costco is an expensive stock today doesn’t mean it will always be an expensive stock. In fact, the stock has seen drawdowns of more than 40% multiple times in the past. So there’s a chance that it could, someday, see a price decline that would make it a buy. But, right now, the best place for this advantaged retailer is probably on your wish list.

Bulk-buying, bargain-hunting shoppers propelled Costco Wholesale (COST 0.43%) to a record-breaking 2024 for sales and earnings. The discount retailer is benefiting from a resilient economic backdrop while capitalizing on an ongoing e-commerce expansion. Its latest update highlighted further growth momentum to kick off 2025.

With the stock up 47% over the past year and currently trading at an all-time high, can the rally keep going? Let’s discuss what to do with shares of Costco Wholesale.

The case to buy or hold Costco stock

With 139 million cardholders worldwide, Costco’s members-only store concept remains massively popular. Its loyal customer base is attracted to low prices on a variety of items, from everyday essentials to jewelry, electronics, and furniture. Access to exclusive deals, including discounted gasoline, travel services, and an in-store pharmacy, means that for many people, the annual membership fee is a no-brainer.

Costco’s ability to pull in new members and keep them within its retail ecosystem highlights the power of its operating model and the attraction of the stock as a possible investment.

Image source: Getty Images.

The recent trends have been impressive. Costco recently reported its January results (for the period ended Feb. 2), with net sales up 9.2% year over year and total company comparable store sales increasing by 9.8% during the month, excluding the impact of changes in gasoline prices and foreign exchange.

Perhaps the bigger story has been Costco’s success at building out its e-commerce business, with segment comparable sales 13.6% higher than the same month last year. This dynamic is important as it represents a new growth driver, allowing Costco to leverage its extensive logistics infrastructure with a more diversified merchandise mix to reach a wider consumer market online.

According to Wall Street estimates, Costco is on track to generate a solid 7% revenue increase this year and in 2026. The runway includes the hike to the U.S. and Canada membership pricing announced last year, lifting the top line and profitability margins as the plans renew at a modestly higher rate. Costco intends to open 20 new warehouses in the remainder of fiscal 2025 as a tailwind for new memberships. The forecast for earnings per share (EPS) is even stronger, climbing at around a 10% annual rate for the next two years.

Investors convinced that Costco is well-positioned to continue its path of steady, profitable growth as it expands internationally have plenty of reasons to buy the stock.

Data source: Yahoo Finance. YOY = year over year.

The case to sell Costco stock

There’s a lot to like about Costco, with all indications that its outlook is as strong as ever, supported by solid fundamentals. On the other hand, the apparent optimism toward the company’s retail dominance has translated directly into an objectively expensive valuation. Shares of Costco are trading at 58 times its consensus 2025 EPS estimate, a level well above peers like Walmart and Amazon, each with a forward P/E ratio closer to 37.

The market appears to be assigning Costco an earnings premium based precisely on its membership-based model and consistent execution history. While this metric alone doesn’t mean the stock needs to sell off anytime soon, the concern is that it could at least limit the upside in the share price against already high expectations. All this is in an environment that faces other uncertainties with Costco being exposed to broader macroeconomic conditions. While details have not been confirmed, proposed trade tariffs by the Trump administration have the potential to generate some supply chain disruptions or inflationary cost pressures as an operating headwind.

Investors who believe Costco will be challenged to achieve its financial targets and see room for membership performance metrics to slow going forward could consider selling or at least avoiding the stock.

COST PE Ratio (Forward) data by YCharts

Decision time

I believe shares of Costco are just too pricey to buy today with conviction. There are likely enough strong points for shareholders to continue holding, but investors sitting on the sidelines may find more compelling opportunities elsewhere in the stock market. Nevertheless, this is one stock to keep on your radar for the possibility of a market correction that might offer a chance to acquire shares at a lower and more attractive price.