Costco Wholesale (COST 1.21%) may not operate an exciting business, but it has delivered some exciting returns to shareholders. Even after a nearly 20% slump since its early April peak, investors who purchased $1,000 worth of Costco stock back in January 2010 would be sitting on a position worth more than $8,500 today. And factoring in its dividend payments, their total returns would be worth more than $11,000. Those are incredible results for a brick-and-mortar retailer. 

But for investors looking at buying shares today, the relevant question is whether or not they can expect similar returns over the next decade and beyond. 

Two people shopping in a warehouse.

Image source: Getty Images.

Costco is an exceptional retailer 

For those who are unaware, Costco is a membership warehouse retailer that charges customers an annual fee for the privilege of shopping at its stores. It offers two tiers of membership -- standard and executive. The former costs $60 per year. The latter costs $120 and comes with the added benefit of 2% cash back on all purchases made from the chain.

As of Feb. 13 -- the end of its fiscal 2022 second quarter -- Costco boasted 63.4 million membership households, up by 900,000 from the end of its fiscal first quarter. Of that total, 27.1 million were executive members. Interestingly, while executive members accounted for 42.7% of members, they delivered 71% of Costco's overall sales. That's understandable. Folks who expect to spend more will be more likely to opt for the executive membership, expecting the cashback benefit to more than compensate for the higher annual fee.

Costco has developed a reputation for providing exceptional value to shoppers. The company uses its size and scale to bargain with suppliers, and it passes most of the savings it achieves from purchasing in bulk on to consumers. Its profits primarily come from membership fees rather than product markups. Its sales have grown from $99 billion to $196 billion in the last decade, while its operating profit margin increased from 2.8% to 3.4%. 

COST Operating Margin (TTM) Chart

COST Operating Margin (TTM) data by YCharts

Recognizing the value Costco offers them, its members have largely stayed loyal, renewing their memberships at a 92% clip in the U.S. and Canada in Q2 and 89.6% worldwide. Given that its reputation has been earned over decades, it would be difficult for any competitor to infringe upon its dominance in its niche.

The customer-value proposition could be more critical in the coming years as inflation bites into consumer purchasing power. Given Costco's reputation for providing quality at excellent prices, consumers looking for more bang for their buck will find it an even more appealing choice during a period when their household budgets are being pinched. 

Costco's stock is on the expensive side 

Costco's excellent customer-value proposition and great execution have fueled its impressive stock price appreciation since 2010, no doubt. However, can investors expect similar gains over the next decade? 

COST Price to Free Cash Flow Chart

COST Price to Free Cash Flow data by YCharts

The chart above reveals that Costco's valuation as measured by the price-to-earnings metric has gotten noticeably more expensive, particularly since 2018. While it will likely continue winning a meaningful share of consumer spending over the next decade, its stock price may show more muted gains from here. That said, investors should put Costco on their watch lists, and if the stock price slumps, perhaps in sympathy with a broader market fall, that would create a better buying opportunity for the stock