Costco Stock Analysis 2026: COST Valuation, Membership Model & Outlook

The Cult of Costco

I've never seen people get excited about a store the way they get excited about Costco. It's almost religious. People plan their weekends around Costco trips. They brag about their finds. They eat the $1.50 hot dog like it's a pilgrimage ritual.

This isn't normal retail behavior. And that's exactly why Costco's stock keeps winning despite always looking overvalued.

Company Overview

The Basics	Details
Ticker	COST (NASDAQ)
Market Cap	~$420 billion
CEO	Ron Vachris (since January 2024)
Warehouses	~890 worldwide
Members	~135 million cardholders
Renewal Rate	~93% (US/Canada)
Dividend Yield	~0.5%

How the Membership Model Works

Costco's business model is brilliantly simple: charge an annual fee, then sell products at basically cost. The membership fee IS the profit.

The Math

Revenue Source	Amount (FY2025)	Operating Margin
Merchandise Sales	~$270 billion	~0% (breakeven-ish)
Membership Fees	~$5.2 billion	~100% (pure profit)

Wait, they sell $270 billion in stuff and basically make zero margin on it? Correct. The product sales exist to justify the membership fee. That $65/year (or $130 for Executive) is where the money lives.

Why This Works

• Aligned incentives: Costco's job is to save members money. The more they save, the more they renew.
• Predictable revenue: Membership fees are recurring and paid upfront.
• Selection discipline: Only ~4,000 SKUs vs 30,000+ at competitors. Less choice = more negotiating power.
• Treasure hunt: Limited-time items create urgency. "Buy it now or it's gone."

Why Competitors Can't Copy It

Walmart tried warehouse clubs with Sam's Club. Amazon has its thing. Why can't anyone match Costco?

The Costco Advantages

1. Employee culture: Costco pays well above retail average. Less turnover, better service, more productive stores.
2. Buying power: When you're THE volume buyer for many products, you get the best prices.
3. Real estate: Prime locations locked up decades ago. Hard to replicate.
4. Member trust: That 93% renewal rate didn't happen overnight. It's decades of delivering value.
5. Private label quality: Kirkland Signature (more on this below) is genuine quality, not "store brand garbage."

Charlie Munger, Buffett's late partner, called Costco one of his favorite companies. He said their model of shared savings with customers created an almost unfair competitive advantage. He wasn't wrong.

Kirkland Signature: The Secret Weapon

Kirkland Signature isn't just a store brand—it's a retail phenomenon. It outsells many national brands while generating higher margins for Costco.

Kirkland By the Numbers

Metric	Value
Annual Revenue	~$65 billion
Share of Costco Sales	~25%
Top Products	Toilet paper, olive oil, vodka, diapers

Fun fact: Kirkland vodka is rumored to be made by Grey Goose (though they deny it). Whether true or not, the perception that Kirkland equals quality at half the price is deeply embedded.

The Financial Story

Costco's financials are boringly consistent. That's a compliment.

Recent Performance

Fiscal Year	Revenue	Net Income	EPS
FY2023	$238B	$6.3B	$14.16
FY2024	$254B	$7.4B	$16.56
FY2025	$275B	$8.2B	$18.50

Comp Store Sales

Comparable store sales growth is the key metric for retailers. Costco consistently delivers 4-7% comps, which is exceptional for a mature retailer.

Year	US Comp Sales	Notes
FY2023	+5.0%	Steady
FY2024	+6.2%	Strong
FY2025	+5.5%	Consistent

Capital Allocation

• Regular dividend: Small but growing (~$4.50/share annually)
• Special dividends: Occasional large payouts ($15/share in 2024)
• Warehouse expansion: ~25-30 new locations per year
• Minimal buybacks: Unlike most companies, they prefer special dividends

The Valuation Problem

Here's the thing: Costco always looks expensive. Always. For years, value investors have said "I love the business but the valuation is crazy." And for years, the stock has kept going up.

Valuation Metrics

Metric	Costco	Walmart	S&P 500
P/E Ratio	~52x	~28x	~22x
Forward P/E	~45x	~24x	~19x
P/S Ratio	~1.5x	~0.8x	~2.5x

52x earnings for a retailer! That's tech stock territory. So why does it keep working?

Why the Premium Persists

• Predictability: Investors pay up for consistent growth. Costco delivers.
• Recession resilience: In downturns, Costco actually gains customers looking for value.
• Long runway: International expansion (especially Asia) offers years of growth.
• Membership fee increase: They can raise fees every few years. Pricing power is real.

Future Growth Potential

Where does growth come from for a 40+ year old retailer?

Growth Drivers

1. New warehouses: Still opening 25-30 per year. US isn't saturated, and international has huge potential.
2. Membership fee increases: Haven't raised since 2017. An increase is coming. That's pure profit.
3. International expansion: Japan, Korea, Taiwan love Costco. China is barely tapped.
4. E-commerce growth: Not their strength, but same-day delivery is improving.
5. Higher penetration: Getting existing members to spend more through new categories.

International Opportunity

Region	Current Warehouses	Opportunity
Asia (ex-China)	~60	High—strong brand loyalty
China	~7	Very High—huge market, early stage
Europe	~40	Medium—slower adoption
Australia	~15	Medium—growing steadily

Should You Buy?

Costco is a fantastic business. The question is whether it's a good stock at today's price.

The Case for Buying

• One of the best retail operators in history
• Recession-resistant business model
• Long runway for international growth
• Membership fee increase is free money waiting to happen
• Culture and execution are world-class

The Case for Waiting

• 52x P/E is very expensive
• Any execution stumble would hurt the stock badly
• Limited dividend yield if you need income
• A lot of good news is already priced in

My Take

Costco is a "buy on dips" stock for me. I wouldn't chase it at all-time highs, but a 15-20% pullback (which happens every year or two) is a buying opportunity. The business is too good to ignore entirely, but the valuation demands discipline.

Suggested Positioning

Strategy	Approach
Quality-focused, patient	Start small position, add on pullbacks
Value-conscious	Wait for 20%+ correction
Long-term core holding	3-6% of portfolio, dollar-cost average

If someone told me I had to own one retail stock for the next 20 years and couldn't touch it, Costco would be my pick. That doesn't mean I'd buy it at any price, but it means I'd always want some exposure.

Just don't buy it right after reading this because "the hot dog is still $1.50." That's true, but it's not investment advice.

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This is not investment advice. I own Costco stock. Do your own research before making investment decisions. And yes, the hot dog is still $1.50.