Costco (COST +1.10%), the world's largest warehouse club retailer, is often considered a stable blue chip stock. Yet over the past 12 months, its stock declined by more than 10% as the S&P 500 rose 16%. It has also pulled back nearly 20% after hitting its record high in February.
Should investors buy, sell, or hold Costco's stock as the new year begins? Let's review its business model, growth rates, and valuations to make an informed decision.
Image source: Getty Images.
Costco's core business is firing on all cylinders
Costco can afford to sell its products at low margins because it generates most of its profits from its membership fees. It also leverages its scale to negotiate lower prices from suppliers, and its sales of bulk products attract a large number of cost-conscious consumers.
NASDAQ: COST
Key Data Points
To tightly control its inventory and costs, Costco carries a narrower selection of products than superstores like Walmart (WMT +1.47%) and sells its private-label Kirkland products. It also locks in its members with its food court, gas stations, vision centers, and other ancillary services.
Costco's business should remain healthy as long as it continues to grow its comparable store sales, opens new warehouses, attracts new cardholders, and maintains high renewal rates. All four of those key performance metrics increased from fiscal 2020 to fiscal 2025 (which ended this August), even as the pandemic, inflation, and other macroeconomic headwinds impacted the retail sector.
|
Metric |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
FY 2025 |
|---|---|---|---|---|---|---|
|
Adjusted* Comps Growth |
9.2% |
13.4% |
10.6% |
5.2% |
5.9% |
7.6% |
|
Total Warehouses |
795 |
815 |
838 |
861 |
890 |
914 |
|
Total Cardholders |
105.5M |
116.1M |
118.9M |
127.9M |
136.8M |
140.6M |
|
Global Renewal Rate |
88% |
89% |
90% |
90.4% |
90.5% |
90.5% |
Data source: Costco. *Excludes fuel sales and foreign exchange rates.
Costco even raised its membership fees for the first time in seven years last September, but it continued to gain new cardholders without reducing its global renewal rates. That pricing power in its membership fees is partly offsetting the inflationary pressure on its product sales.
In the first quarter of fiscal 2026, Costco's adjusted comparable sales (comps) rose 6.4% as the company increased its warehouse count to 923 locations. It ended the quarter with 145.9 million cardholders, but its global renewal rate dipped to 89.7% as it gained a higher mix of promotional members.
What are Costco's near-term catalysts?
For fiscal 2026, Costco plans to open 28 new warehouses, with approximately half located in the U.S. and the other half in its overseas markets. That's down from its prior outlook for 35 new openings (due to delays in Spain), but it still matches its average rate of 25-30 new warehouse openings over the past few years. It also aims to open at least 30 new warehouses annually in its "future years".
Costco will support the expansion of its e-commerce platform, which is growing faster than its brick-and-mortar stores, with new online features and upgrades for its logistics networks. It also expects to increase its mix of higher-value Executive members, who get more discounts and perks than its basic Gold Star members. Its number of Executive members grew 9.1% year over year to 39.7 million (27% of its total cardholders) in the first quarter of fiscal 2026.
Costco didn't provide any top- or bottom-line guidance for fiscal 2026, but analysts expect its revenue and adjusted earnings per share (EPS) to grow by 8% and 11%, respectively. For fiscal 2027, they expect Costco's revenue and adjusted EPS to rise 7% and 10%, respectively.
Is Costco's stock a buy, sell, or hold for 2026?
Costco's near-term gross margins may be compressed by inflation and tariffs, but its core business should continue expanding for the foreseeable future. However, at $860 per share, its stock isn't cheap, trading at 42 times this year's earnings. Its paltry forward yield of 0.6% will also likely not attract income investors as interest rates decline.
I expect Costco's high valuation and low yield to limit its upside potential next year; however, I still believe it's a solid, evergreen stock for long-term investors. Therefore, it's smarter to buy and hold Costco's stock for a few years instead of selling it in this choppy market.
