Costco (COST): A Deep Dive Into Valuation After Strong Earnings and Recent Share Price Pullback

Costco Wholesale (COST) just wrapped its fiscal quarter with solid gains in net sales and growing membership income, powered by its trademark low-margin, high-volume approach. Still, the stock is under pressure after recent declines, which draws fresh questions about its elevated valuation compared to future growth prospects.

See our latest analysis for Costco Wholesale.

Costco’s latest retail wins and solid membership growth are promising, yet the share price has fallen over 15% since February and momentum is still soft, with a 1-year total shareholder return of -6.3%. While the company’s business model is delivering sturdy results, the lofty valuation means investor enthusiasm is tempered, at least for now.

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With its financial resilience considered alongside an unusually high valuation and recent share price weakness, the central question is now clear: Is the recent decline in Costco’s stock a genuine buying opportunity, or has the market already priced in every bit of expected future growth?

Most Popular Narrative: 14.9% Undervalued

The most closely followed narrative values Costco Wholesale at a fair value above its latest closing price. This highlights a potential misalignment between recent price action and future prospects and sets the stage for the core catalysts underpinning the narrative’s bullish case.

Costco plans to continue expanding its warehouse locations, with 28 new openings planned for fiscal year 2025. This expansion is likely to increase membership and sales volume, driving revenue growth.

Read the complete narrative.

Want to know why analysts think Costco deserves its rich valuation? The most important drivers behind this price include ambitious revenue growth, robust membership trends, and bold profit margin assumptions. Ready to discover which expectations could push Costco higher? Click above for the full story and find out the forecasts fueling this valuation.

Result: Fair Value of $1,055.97 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, foreign exchange fluctuations and rising labor costs could pressure Costco’s profit margins. These factors may challenge the bullish outlook if such trends persist.

Find out about the key risks to this Costco Wholesale narrative.

Another View: Market Ratios Tell a Different Story

While our first look highlights Costco as undervalued based on analyst targets, its price-to-earnings ratio sits at 49.2x. This is a stark contrast to the US Consumer Retailing average of 20.9x and a fair ratio of 33.2x. This premium pricing signals that much optimism is already built into the stock. Are investors paying too much for proven resilience?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Costco Wholesale Narrative

Feel that the story could be interpreted differently, or want to dive deeper on your own terms? You can craft your own narrative and conclusions in just a few minutes. Do it your way.

A great starting point for your Costco Wholesale research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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