COST — Costco
I love Costco. The stock price has apparently noticed.
Costco is basically membership economics wrapped around warehouses that refuse to maximize merchandise margin. Customers get obvious value, suppliers get huge volume, and Costco gets recurring fees from people who really do not want to cancel. I love the business. Unfortunately, so does everyone else.
Costco might be the easiest company in the world to like and one of the easiest stocks to overpay for because of it. I do not need fourteen tabs to understand why the business is good. The hard part is keeping “I want to own this” separate from “therefore this price is fine.”
Why I care about this one
Membership economics, scale, trust, treasure-hunt merchandising, supplier power and absurd customer loyalty make Costco a compounding machine. The membership fee is especially beautiful because it turns customer loyalty into a recurring high-margin stream while low merchandise markups reinforce the value proposition.
Fiscal 2026 net sales reached $297.2B, up 10.1%. Q4 adjusted comparable sales grew 6.7%, digitally enabled sales grew 19.8%, and full-year net income reached $9.226B. The business is doing exactly what I would want. Which is great. It also means valuation is basically the entire argument.
You can almost explain the whole operating thesis through member behavior. Sales, traffic, digital growth and membership fees all say the value proposition is still working. Great. The stock price has apparently read the same data.
Fiscal Q4 / FY2026
Primary sources: Q4 / FY2026 results ↗
FY2026 closed with $297.2B of net sales, 6.6% adjusted full-year comparable growth, digitally enabled sales up 20.7% and $20.76 of diluted EPS. The business keeps earning the premium. The model still does not make me want to pay it. Entry bands now derive directly from the $20.76 anchor at 38x / 32x / 30x.
Membership growth and renewal stay strong, traffic and unit expansion keep compounding, and international/digital growth extend the runway without compromising the low-markup value proposition.
Renewal or traffic weakens, management starts optimizing merchandise margin at the expense of member value, international unit economics disappoint, or the multiple stays so high that good execution still cannot produce a return I care about.
What gets this into the portfolio
Valuation & scenario math
My buy bands are deliberately demanding: 38x P/E starter, 32x normal, 30x aggressive, eventual position only 1%–3%. If Costco never gives me that setup, I can survive the emotional trauma of not owning Costco.
The buy bands are harsh on purpose. I do not need to own Costco at any price. A fantastic company can compound exactly as expected and still give me a very average return if the starting multiple is doing all the heavy lifting.
“My current view” is the output of my dated valuation framework, not a magical buy instruction. A BUY still has to beat the expected return of what I already own and the index before it gets actual money.
38x / 32x / 30x normalized earnings
| Band | Buy price | 5Y base center | 5Y CAGR at entry |
|---|---|---|---|
| Starter | $789 | $1,270 | +10.0% |
| Normal | $664 | $1,270 | +13.9% |
| Aggressive | $623 | $1,270 | +15.3% |
The zone label uses the live quote when available; the model itself is anchored to the Sep 28, 2026 reference close at $923. This framework mostly exists to stop me from buying Costco because I like Costco. That is not a valuation method.
FY2026 diluted EPS is the anchor. This is the cleanest example on the site of an elite business still being capable of a mediocre stock return because I started from a ridiculous multiple.
| Normalized EPS today | $21 |
| Annual EPS growth | 10% |
| EPS by Sep 25, 2031 | ~$33 |
| Terminal P/E | 38x |
| Implied base price | ~$1,270/share |
The base case is basically ~$33 of Sep 25, 2031 EPS at 38x, or about $1,270/share. Same math, just without making the reader decode equation soup.
| Case | What has to be true | Target range | Total return* | Annualized return* |
|---|---|---|---|---|
| Bear | 6% annual EPS growth · 28x terminal P/E. The business keeps executing, but valuation normalizes hard enough to dominate the return. | $723–$832 center ~$778 | -15.7% | -3.4% |
| Base | 10% annual EPS growth · 38x terminal P/E. Membership economics, traffic and store growth compound normally while the stock retains a large but lower premium. | $1,182–$1,359 center ~$1,270 | +37.7% | +6.6% |
| Bull | 13% annual EPS growth · 44x terminal P/E. Traffic, memberships and global expansion remain exceptional and the market barely compresses the premium. | $1,565–$1,801 center ~$1,683 | +82.4% | +12.8% |
*The static returns use the dated reference price. The annualized figure on the live page also refreshes from the current quote. For shorter model horizons, annualizing can make the number look ridiculous, so I care about total return and the underlying milestones at least as much.
Capital allocation
About as clean as capital allocation gets.
Costco reinvests into warehouses, supply chain and the member proposition, then returns genuinely excess capital. The reason I score it so highly is almost boring: management keeps resisting the temptation to maximize merchandise margin at the expense of the thing that makes Costco Costco.
Stage-relative, not some objective rating-agency grade. The number is there to force the judgment into the open. See the rubric →
What management is actually doing with the cash
The capital-allocation job is mostly 'do not ruin Costco.' Open productive warehouses, improve the member experience, keep the value proposition obvious, and return truly excess cash when it exists. I do not want management squeezing merchandise margin just because it makes one quarter look prettier. That would be making the stock better by making Costco worse.
What earns another dollar from me
No position. I am waiting for the stock to compete on expected return, not just business quality.
What can break this
There is no dramatic turnaround story to solve here. The obvious risk is me doing something dumb because the company is so easy to admire. Earnings can grow normally, the business can stay fantastic, and a premium multiple compressing can still leave me with a painfully average return.
The Ready-at-the-right-price thesis changes if membership economics, traffic/renewal behavior or the value proposition weakens. Otherwise the likely reason I continue owning zero shares is simply price.
I love Costco. I own zero shares.
Those two things are allowed to coexist 😂.