title: "Is Costco (COST) Overvalued in 2026?" description: "Analysis of whether Costco stock is overvalued in 2026. Examines membership model, margins, P/E ratio, competitive moat, and growth." date: "2026-02-16" category: "Stock Analysis" tags: ["stock-analysis", "valuation", "Costco", "COST", "retail", "membership-model"] readingTime: 8 author: "Moatifi"

Is Costco (COST) Overvalued in 2026?

Costco is one of the most admired companies in retail, and its stock price reflects that admiration. With a trailing P/E ratio above 50x, Costco is valued more like a high-growth tech company than a warehouse retailer. The question investors keep asking: is this premium justified, or has the market gotten carried away? This analysis is for educational purposes only.

Costco's Business Model

Costco's model is deceptively simple but extraordinarily difficult to replicate. The company operates over 900 warehouse locations globally, selling a curated selection of approximately 3,700 SKUs (compared to 30,000+ at a typical Walmart or 100,000+ at Amazon) at razor-thin markups. The real profit comes from membership fees, not product margins.

Fiscal year 2024 (ending September 2024) was another strong year. Net sales reached approximately $254 billion, up about 5% year-over-year. Membership fee revenue hit approximately $4.8 billion, up about 8%, boosted by a membership fee increase (the first in 7 years) from $60 to $65 for Gold Star members.

What the Numbers Say

Revenue and Growth - FY2024 net sales: ~$254 billion (up ~5% YoY) - Membership fee revenue: ~$4.8 billion (up ~8% YoY) - Total revenue: ~$258.8 billion - Comparable sales growth: ~5.5% - E-commerce growth: ~16% - Total members: ~137 million cardholders (76 million households)

Profitability - Operating income (FY2024): ~$9.3 billion - Operating margin: ~3.6% - Net income: ~$7.4 billion - Net margin: ~2.9% - Membership fee as % of operating income: ~52% - Return on equity: ~27% - Return on invested capital: ~20% - Free cash flow: ~$5.8 billion

Valuation Metrics - Market cap: ~$415 billion - Trailing P/E: ~56x - Forward P/E: ~48-50x - Price-to-sales: ~1.6x - Price-to-free cash flow: ~72x - EV/EBITDA: ~37x - Dividend yield: ~0.5%

Membership Metrics - Renewal rate (US/Canada): ~93% - Renewal rate (worldwide): ~90.5% - Executive members: ~35 million (highest-tier, $130/year) - Average annual spend per member: ~$3,700

The Competitive Moat

Costco's moat is one of the most durable in all of retail.

Membership Model Creates Loyalty. The membership fee creates a psychological commitment: once you have paid, you are incentivized to shop at Costco to "earn back" the fee. The 93% renewal rate in the US and Canada demonstrates extraordinary customer loyalty. This recurring fee income ($4.8 billion) provides a high-margin base that funds low product prices.

Cost Leadership Through Scale. Costco's buying power is enormous. By offering only ~3,700 SKUs (versus tens of thousands at competitors), Costco can negotiate the lowest per-unit costs from suppliers. The limited selection means each product sells in higher volume, giving Costco leverage that even Walmart struggles to match in many categories.

Low Overhead and Operational Efficiency. Costco's warehouse format, minimal advertising spend, and no-frills approach keep SG&A costs among the lowest in retail. The company spends approximately 9% of revenue on SG&A, compared to 20%+ at many competitors.

Employee Moat. Costco pays significantly above industry average wages, resulting in lower turnover (~8% vs. 60%+ industry average). Better-paid, more experienced employees drive higher productivity, lower training costs, and superior customer experience.

Kirkland Signature Private Label. Costco's Kirkland Signature brand generates approximately $70+ billion in annual sales, making it one of the largest consumer brands in the world. Kirkland products typically offer comparable quality to name brands at 20-40% lower prices, driving customer loyalty and higher margins for Costco.

The Bull Case

The moat keeps widening. Costco's competitive advantages are strengthening, not weakening. The membership fee increase (which has minimal impact on renewal rates historically) directly flows to the bottom line. Each new warehouse location adds to the flywheel of scale and buying power.

International expansion runway. Costco operates ~900 warehouses globally, with significant room to grow internationally. The company is expanding in Japan, China, Australia, and Europe, where the warehouse club concept is still relatively underpenetrated.

E-commerce is growing. Costco's e-commerce business grew ~16% in FY2024, with increasing penetration of grocery delivery, same-day delivery via Instacart, and online-exclusive items. Digital is a complement, not a threat, to the warehouse model.

Membership fee increases are pure profit. Costco has historically raised membership fees every 5-7 years. Each increase adds hundreds of millions in high-margin revenue. With 76 million households, even a small fee increase is highly accretive.

Recession resilience. In economic downturns, Costco's value proposition becomes even more compelling. Consumers trade down to Costco's lower prices, and membership renewal rates have historically held steady through recessions.

Consistent execution over decades. Costco has increased revenue, membership count, and warehouse count almost every single year for decades. The management team (led by CEO Ron Vachris, who started as a forklift driver) deeply understands and protects the culture.

The Bear Case

Valuation is extreme. At 56x trailing earnings and ~50x forward earnings, Costco is the most expensive large-cap retailer by a wide margin. Walmart trades at ~30x, Amazon at ~40x. For a company growing earnings at ~12-15% annually, a P/E above 50x implies the market is pricing in many years of perfect execution.

Growth is steady but not spectacular. Costco's revenue growth (~5%) and earnings growth (~12-15%) are solid but not exceptional. The stock's premium valuation requires sustained mid-teens earnings growth for years, which is a high bar for a mature retailer.

Physical retail limitations. Costco's model requires customers to physically visit large warehouse locations. As demographics shift and e-commerce penetration grows, the warehouse trip may become less convenient for some customer segments. Younger consumers may prefer Amazon's convenience.

Limited international success is uncertain. While Costco performs well in certain international markets, the warehouse club concept does not translate equally everywhere. Cultural differences in shopping habits, real estate costs, and competitive dynamics vary significantly by country.

Thin product margins leave no room for error. Costco intentionally caps markups at ~14-15%. While this attracts customers, it means even small cost increases or operational missteps have outsized impacts on profitability. The business model has almost no margin buffer.

Amazon and Walmart are investing heavily. Both Amazon (via Prime, Whole Foods) and Walmart (via Walmart+, Sam's Club) are investing aggressively in membership-based value retail. Sam's Club, in particular, has been gaining share and improving its member experience.

Putting It All Together

Costco is an outstanding business with a wide and durable moat. The membership model, cost leadership, and employee-centric culture create a virtuous cycle that has delivered remarkably consistent results for decades.

However, being a great business and being a great investment are different things. At 56x trailing earnings, Costco's stock price already reflects its exceptional quality. Investors are paying a significant premium for predictability and moat durability, leaving minimal margin of safety.

The stock is not necessarily "overvalued" in the sense that the business is deteriorating; it is "fully valued" in the sense that the price assumes continued excellent execution for many years. Any earnings disappointment, however small, could result in a meaningful multiple compression.

For investors who prioritize quality and predictability over valuation, Costco may still merit a place in a long-term portfolio. For those who demand a margin of safety, the current valuation offers little room for error.

Want the full analysis? See our complete COST moat analysis for a deep-dive into competitive advantages, 10-year financials, and intrinsic value estimate.