In the retail sector, Costco (NASDAQ: COST) has been one of the biggest long-term winners. A favorite of Warren Buffett's late partner, Charlie Munger, Costco's killer business model, low-price ethos, and consistent growth even in a tough retail environment have made for another winning year in 2024.

But with the stock up another 50.8% in 2024 and Costco's share price recently touching $1,000 per share, are shares still a buy?

Make no mistake, Costco isn't a cheap stock. Shares currently go for a whopping 58 times earnings. That type of valuation is usually reserved for high-growth tech companies, not large and mature retailers.

The high P/E ratio comes despite Costco growing revenue just 5% last year, with analysts expecting just 7% growth each of the next two years.

While accelerating mid-to-high single-digit growth is nothing to sneeze at, it certainly doesn't seem to justify Costco's kind of multiple.

Even though revenue is only growing in the mid-to-high single-digits, Costco's earnings are growing much faster, up 17% in fiscal 2024.

The company is obviously generating terrific operating leverage and margin expansion. This could be because Costco is an incredibly low-margin company to start with, thanks to its membership business model and rigorous commitment to having the lowest prices anywhere. With tiny margins, any small improvement can lead to big profit growth.

Remember, Costco is a membership club whereby customers pay a modest annual fee for access. The price of a standard Gold Star membership was just raised from $60 to $65 -- the first price increase in seven years. However, that's still a bargain, considering the wide variety of heavily discounted items Costco sells.

Costco leans heavily on its membership fees for profitability; in fiscal 2024, Costco's $4.8 billion in membership fees accounted for 52% of the company's $9.3 billion in operating income. But that stream of membership fee income enables Costco to sell its merchandise at microscopic margins. In 2024, Costco had just an 11% merchandise gross margin and just a 1.8% merchandise operating margin.

That margin is extremely difficult for non-membership-based retailers to compete with, and it's also why Costco continues to attract more and more customers, generating operating leverage on its existing real estate.

Operating at such low margins means even a small amount of margin expansion could lead to a big difference in profits. For instance, if profit margins just went from 1.8% to 1.9%, that would be a 5.6% additional increase to profit growth on top of however much the company's top line grows.