Up more than 13% already in 2026 as of this writing, Costco Wholesale (COST +1.10%) stock has been a big winner so far this year. Not only is this performance good in its own right, but it's far ahead of the S&P 500's 1.5% gain during this same period.
Is the stock's recent strong performance a buy signal? Or have investors who didn't buy the stock's recent dip missed out? While there's no way to know what a stock will do in the near term, we can at least look at Costco's recent business performance and see whether shares look like a buy (or not) in the context of the stock's valuation today.
Unsurprisingly to any investors who have followed Costco for a long time, its recent business performance has been stellar. The bigger question, as you'll see, comes down to valuation.
Image source: Getty Images.
Steady growth
In December, Costco announced fiscal first-quarter results that once again demonstrate the resilience of the membership-based wholesale retailer's business. Net sales in the period increased 8.2% year over year to $66 billion. And Costco's comparable sales, a metric that measures sales at stores open for at least a year, rose 6.4% year over year, when adjusted for changes in gasoline prices and foreign exchange.
A key driver for the quarter was membership fee income, which rose 14% year over year. Though a significant portion of this increase in membership fee income was due to a membership fee price increase last year. Management said in Costco's fiscal first quarter earnings call that if you were to exclude the impact of the membership fee increase and foreign exchange, Costco's membership income grew 7.3% year over year in fiscal Q1. Costco CFO Gary Millerchip said this was driven by continued growth in Costco's membership base and increased upgrades from its Gold Star membership to its higher-priced Executive membership.
Another metric worth noting is the company's strong growth in digitally enabled comparable sales. Costco's fiscal first-quarter adjusted digitally enabled sales increased 20.5% year over year, easing concerns that it won't succeed in a world increasingly dominated by e-commerce.
Capturing the company's steady momentum, Costco recently reported sales results for the retail month of December -- and they continued to look strong. The company's adjusted comparable sales for the period rose 6.2% year over year, while adjusted digitally enabled comparable sales rose 18.3%.
NASDAQ: COST
Key Data Points
Time to buy?
Costco's steady growth is one of the reasons the company's shares trade at such a high valuation. But there is more to the story. Perhaps the main reason investors are willing to pay such a high premium for Costco stock is the durability of its business model. Not only does Costco's membership-based approach generate recurring income from membership fees, but it also fosters strong customer loyalty when combined with the company's dedication to low-priced items. In addition, investors know that Costco will almost always perform well because many of the items it sales are essentials, like groceries, toilet paper, and paper towels.
Still, is a loyal customer base and a proven business model based on low prices and non-discretionary items enough to justify a valuation as high as Costco's? After all, the stock's price-to-earnings ratio today is about 53, and its forward price-to-earnings ratio is about 49. With a valuation like this, there is essentially no room for error. Costco needs to keep delivering similarly strong top-line growth rates year in and year out. The stock's valuation simply doesn't leave any room for a soft patch in the company's growth story, giving investors an unfortunate setup.
So, is the stock a buy? I don't think so, I'd personally prefer to wait for a more attractive entry point -- preferably at a price somewhere below $800. Of course, it's possible the stock never falls to this level. But I'll take that chance, investing my money in more attractive opportunities in the meantime.
