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Costco Wholesale (NASDAQ: COST) is one of the largest retailers in the world, and its membership model, combined with rock-bottom pricing, generates consistent growth. However, despite its impressive metrics, Costco stock is up less than 2% over the past year, sorely underperforming the S&P 500.
Here's what's going on, and whether or not it's a good idea to buy Costco stock right now.
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Costco isn't the only membership warehouse retailer, but it's the biggest, and it sets the pace for the industry. It has an all-weather model that works well in good times and in challenging times, like the current inflationary environment.
The model is so reliable because it doesn't need to do much to generate higher sales. It keeps prices down and provides great value, and the shoppers keep coming. It raised its annual membership fee last year with little disruption to renewal and sign-up rates, although sign-up growth decelerated in the fiscal 2026 fourth quarter (ended Aug. 30). Management attributed that to high sign-ups in the comparative year and no major openings in Asia.
Overall, performance was impressive. Sales were up 11.2%, and comparable sales (comps) were up 9.4%. Earnings per share (EPS) rose from $5.87 to $6.75. Much of the company's growth comes from executive members, who pay double the standard membership fee of $65 and are very loyal, accounting for more than three-quarters of total sales. Executive membership increased 9.4%, U.S. and Canada renewal rates were 92.3%, and global renewal rates were 89.8%.
The solid performance continued into September, when Costco reported a 13% year-over-year increase in sales and an 11.2% increase in comps, and the stock got a little boost after the update.
There have been several concerns about Costco lately, including fears about inflation, slowing membership sign-ups, and lower renewal rates. Renewal rates are on the rise again, and management said that the prior slowdown was related to its push into digital registration. While that has a lower renewal rate, it's bringing in younger customers who will drive future growth.
These concerns have overshadowed what have otherwise been fabulous results. The future looks bright, with customers skewing younger and many more stores to open.
Here's where you see the fallout of having a high valuation. Costco stock has traded well above the levels of similar companies for a long time. That's been justified by its reliable model, but it can only go so far. It's trading at a price-to-earnings ratio of 46 today, which is down from over 60 last year but much higher than historical levels.
Even at this price, it's expensive. That means there may still be some downside, but in the long term, Costco stock should deliver for shareholders.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
This Is How Much Costco Stock Has Gained Over the Past Year (It Might Surprise You) was originally published by The Motley Fool
