You may have heard Warren Buffett refer to his ideal investments as "wonderful companies at fair prices," but Costco Wholesale (COST +1.15%), a stock Buffett's holding company Berkshire Hathaway held until 2020, is today an example of a "wonderful company at a super-rich price."
Currently trading at 44 times forward earnings, Costco has a valuation more akin to that of a tech stock than a retail stock. Yet, while the company's numerous strengths, including its economic moat and steady membership fee revenue stream, help justify this high multiple, the stock, after an extended period of mixed price performance, it could remain rangebound over the next twelve months.
NASDAQ: COST
Key Data Points
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Tariff troubles, valuation worries weigh on Costco's shares
Over the past year, shares in this leading operator of discount membership warehouses declined by nearly 10%. In contrast, the S&P 500 has gained over 13% during the same time frame. Now, aside from Costco's qualities and popularity, the company and its shares have had to contend with two key issues.
First, the impact of this year's tariff hikes. This resulted in volatility for the stock throughout the year. Second, alongside uncertainty regarding tariffs, valuation concerns have also weighed on the stock.
Even as another popular retailer, Walmart (WMT +2.01%) trades at a similarly high forward P/E of around 38, shares in most other major U.S. retailers trade at forward multiples in the 10 to 20 range.
Subpar performance may lie ahead in 2026
Costco continues to beat earnings expectations, indicating that tariffs have not been as troublesome as initially thought. Yet even if this trend continues, through the company's upcoming earnings release on Dec. 11, don't assume smooth sailing from here.
Premium valuation notwithstanding, I don't believe a correction looms. As positive perceptions about the company persist, Shares could sustain their premium valuation. However, that may only mean shares stay rangebound, as investors wait for Costco to "grow into its valuation."
In short, Costco shares could stay rangebound over the next year, suggesting it may be best to seek more promising opportunities elsewhere among blue chip stocks.
