Based on recent trends in the market and the economy, investors might think that the only way to achieve outsized returns is to allocate capital to the technology sector. After all, that's where some of the most dominant businesses reside. But other sectors can also provide winners.

Since mid-July 1995, one top retail stock has generated a monster total return of just over 16,000%, or 18.5% on an annualized basis. Had you been around to invest just $1,000 into this business back then, you'd have $163,000 today. The company's durable success, coupled with patience and the power of compounding, resulted in a fantastic outcome for shareholders.

Here's more about this business and whether it deserves a spot in your portfolio.

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Costco is a dominant force in retail

Costco (COST -0.40%) is known for selling high-quality merchandise at extremely low prices in massive warehouse clubs. What's more, not just anyone can shop here. Paying an annual fee is required to visit and spend money at the stores.

At a high level, this business model has remained unchanged since the early days of the company. However, there have been some strategic pivots over the years, which any company must implement to stay competitive. That's particularly true in the retail sector.

Costco once only targeted small business customers. Now, anyone can become a member, which substantially increases the potential revenue opportunity by opening the warehouse to a larger audience.

The company has also found remarkable success with its Kirkland private label, which was introduced in 1995. About one-fourth of Costco's merchandise sales come from this banner, excluding gasoline. On a stand-alone basis, Kirkland would be one of the biggest consumer goods enterprises on Earth.

Costco is increasingly making a push to expand overseas. While 733 of Costco's 905 warehouses are still located in the U.S. and Canada, it's becoming an international operation. The company wants to get to a point where half of its new warehouses opened each year are in foreign markets.

More recently, as technological advancements alter consumer expectations, Costco isn't sitting around idle. Its online revenue is growing faster than the overall business, with an e-commerce same-store sales gain of 11.5% in June.

Is Costco stock a buy now?

For a stock to perform this well over three decades, the underlying company must have been around for a long time. And it's likely a leader in the industry today. This is true of Costco, whose $62 billion in net sales in the fiscal 2025 third quarter (ended May 11) make it the third-biggest retailer on the planet.

That size is a tremendous advantage. Costco generates huge sales figures, which require it to buy vast amounts of merchandise from its suppliers. But since the business carries just 4,000 stock-keeping units, much less than the tens of thousands at typical supermarkets, it has a strong negotiating lever to obtain favorable pricing that benefits shoppers. This advantage isn't going away.

Despite its massive scale these days, Costco continues to expand. Wall Street consensus analyst estimates predict that revenue and earnings per share will grow at compound annual rates of 7.7% and 11.2%, respectively, between fiscal 2024 and fiscal 2027. This extends a streak of durable financial gains, which highlights how well the business performs consistently.

Costco is a high-quality company that has made the stock a past winner. However, I don't think the future is as bright for investors. The underlying business is fine. It's the valuation that concerns me.

As of July 16, the stock trades in nosebleed territory. If you want to buy shares, you must be comfortable paying a price-to-earnings ratio of 54.2. There are only a few occurrences in history when the valuation was more expensive than it is today. Therefore, investors should wait for a better entry point to buy the stock.