For investors seeking growth stocks, valuation is a critical hurdle to clear. Even a high-quality business can become a poor investment if purchased at too high a price. This is a key consideration when examining two standout growth stocks—Visa (V) and Costco (COST)—where a clear divergence in valuation suggests one may be the more attractive proposition today.
Costco is a global warehouse retailer operating on a membership model. Membership fees provide a stable, low-cost stream of recurring revenue, allowing the company to operate on thinner product margins. Its low prices foster strong customer loyalty and high membership renewal rates, creating a virtuous cycle that has driven long-term growth. The company continues to expand its global footprint.
Visa is a global payments technology giant. It facilitates secure transactions between merchants and consumers using Visa-branded cards, earning a small fee on each. In fiscal 2025, Visa processed 257.5 billion transactions. The company has long benefited from the secular shift from cash to digital payments—a trend accelerated by the growth of e-commerce.
Both Visa and Costco possess strong fundamentals and are likely to deliver growth for years to come, making either a solid candidate for a growth-oriented portfolio. However, this assessment ignores a crucial factor: the current price of their stocks. Investors cannot overlook valuation.
A closer look reveals that Costco’s valuation metrics are elevated across the board. Its price-to-sales (P/S) ratio of 1.5 sits above its five-year average of 1.2. Its price-to-earnings (P/E) ratio of 51 is significantly higher than its longer-term average around 44. Its price-to-book (P/B) ratio of 14.1 also exceeds its five-year average of 12.4. Meanwhile, its dividend yield of 0.5% is near the lowest point in a decade. Historically, the data suggests Costco is trading at a substantial premium.
In contrast, Visa’s current valuation appears more tempered relative to its own history. Its P/S ratio of 18 is below its five-year average of 20. Its P/E ratio of 32 is slightly under its longer-term average of 33. Its P/B ratio of 17, while elevated, is measured against a five-year average of 14. Its dividend yield of 0.8% is around the mid-point of its range over the past decade. On balance, Visa appears more reasonably priced than Costco from a historical perspective.
For context, the S&P 500 Index trades at an average P/E of about 28, a P/B of roughly 5.2, and offers a dividend yield near 1.1%. Compared to this benchmark, neither stock qualifies as a deep “value” play. Growth investors typically accept a premium to the market average, but the key is how much. Currently, Visa’s valuation might place it closer to the “growth at a reasonable price” (GARP) category, making it the relatively more attractive option.
Benjamin Graham, the father of value investing and mentor to Warren Buffett, learned during the Great Depression that overpaying for a wonderful business can lead to disappointing returns. His core principle was to pay a fair or bargain price for a quality company.
When applying this lens to the growth stocks Visa and Costco, the conclusion leans in one direction. Costco is undoubtedly an exceptional business, but it is currently commanding a historically high market premium. For disciplined investors guided by Graham’s wisdom, Visa may represent the more compelling growth opportunity today, offering relatively better alignment with the principle of sensible valuation. Costco, meanwhile, might be best kept on a watchlist for a more attractive entry point.
