Costco Wholesale (COST +1.13%) has always been a reliable market beater, even in challenging times. But it's experiencing some rare underperformance, and the stock is roughly flat over the past year, even though the business is performing beautifully.
Can Costco stock break out of this cycle? Let's see where it might be in another year from now.
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Members can't get enough of Costco
Costco has a unique membership model that stands out in retail. Although there is competition, including BJ's Wholesale and Walmart's Sam's Club, Costco is the largest of its kind, with nearly 1,000 stores worldwide and $280 billion in trailing 12-month sales.
Essentially, what Costco sells is the membership, which trickles down to the bottom line. Its retail merchandise is marked up with razor-thin margins to just cover associated costs, and membership drives high volume as customers aim to make the most of their annual fees.
There are several metrics that track customer satisfaction. Renewal rates are routinely very high, at around 90% or higher, and more members continue to upgrade to the executive membership, which costs double the $65 annual fee. Executive members are highly engaged, accounting for just under half of total members but 74% of total sales.
Membership upgrades are just one growth avenue for the retail giant. Costco is still opening new stores, both in the U.S. and globally, and it has several other levers to pull, such as its recent $5 annual fee hike and attracting new members. It's embracing digital and e-commerce, which is one of its biggest growth drivers today. Digital signups are now an integral part of its business, and it's drawing younger members to the program.
Sales increased 8.2% year over year in the fiscal 2026 first quarter (ended Nov. 23, 2025), with a 14% increase in fee income (including the fee hike) and a 5.2% increase in membership. These are standard increases for Costco, and high inflation hasn't stopped it.
Costco often does well when the economy is pressured, since customers are more likely to shop at discount stores. I would expect the trend to continue over the next year. This reliability is one of the reasons investors love Costco stock.
NASDAQ: COST
Key Data Points
A hefty price tag
In the near term, the market seems to be concerned about how long Costco can keep up sales growth in the face of inflation, and a slight dip in renewal rates, which management attributes to higher digital signups.
But what's driving that is the Costco stock's premium valuation. It's generally more expensive than other retail stocks, since it's so reliable for growth. But it doesn't have a lot of room for error, and if there are any worries, the stock is likely to fall. That seems to be what's happening with Costco stock. Costco stock trades at a price-to-earnings (P/E) ratio of 54, well above the three-year average of 49, which is already expensive. There's a lot built into that price.
If Costco has a flawless year, its stock can rise. However, at this price, there may not be a high upside in the short term. In a year from now, Costco stock may not demonstrate a lot of upward movement unless growth accelerates, and if there are any problems, the stock could fall.
