Costco Wholesale (COST -0.35%) proves that investors don't need to own businesses at the cutting edge of technology to score huge wins. In the past five years, shares of this warehouse club operator have produced a total return of 216% (as of Aug. 14), beating the market by a wide margin.

Despite this strong performance, this top retail stock trades 9% off its record from February of this year. Is Costco an obvious buy right now?

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Hard to disrupt

With fiscal 2025 Q3 (ended May 11) net sales of $62 billion, Costco is the world's third largest retailer. Selling high-quality merchandise at extremely low prices has made it a fan favorite. What's more, operating a membership model helps drive incredibly valued customer loyalty, while at the same time bringing in a recurring revenue source.

Costco should still be thriving well into the future. That's because it's a business that's hard to disrupt. The company possesses a tremendous cost advantage, which allows it to purchase its inventory from suppliers at favorable prices. These savings are constantly passed to customers, encouraging them to increase their spending over time, thus reinforcing the cost advantage.

Steep valuation

However, the market is fully aware of Costco's merits. The stock has performed exceptionally well historically, helping the company get to a $433 billion market capitalization. But the valuation has clearly gotten stretched. Investors can buy shares at a price-to-earnings ratio of 55.3. This is close to the most expensive level in the last 25 years.

Costco is a great business that investors should keep on their watch lists. However, the current valuation is expensive, so the stock is far from being an obvious buying opportunity right now.