You may think that, since Costco Wholesale (COST -0.34%) shares are up only 4% year to date, they shouldn't be considered overly expensive. Yet compared to its main competitors, including Walmart, Costco commands a valuation premium that might be worth paying only if you're a certain type of investor.
NASDAQ: COST
Key Data Points
Investors have been paying a premium for Costco stock for a while now, and it has been more than justified, as it has consistently delivered for its shareholders. Even though Costco's stock is nearly $200 off its 52-week high of $1,096.50, the wholesale club's valuation is lofty because its membership model gives it a high-margin recurring revenue stream. The company's member retention also remains well above 90% year over year. In its fiscal 2026 (which ended Aug. 30), net sales increased by more than 10% to $297 billion.
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Costco continues to expand its footprint, and it has built itself a solid moat. The problem now is that its forward and trailing P/E ratios in the 40s leave little room for error, and they're pricey for the retail industry. Unfortunately, its dividend doesn't do much to make up for that.
Costco stock is priced at a level now where I believe it's best suited as a holding for long-term, growth-focused investors. Income-oriented investors can find greater values and stronger yields elsewhere. Walmart, for example, deserves a look here. Costco has a clear path to international expansion, and price-sensitive customers will continue to sign up for its memberships and renew them year after year. Its growth trajectory makes a lot of sense. As a dividend investor, though, I wouldn't be comfortable paying this type of premium when there are plenty of other stocks to choose from that would enable me to chase yields far higher than 0.6%.
