Does Costco Still Justify Its Premium Price After Recent Share Price Slip?

• If you have ever wondered whether Costco Wholesale is still a smart buy at around $887 a share, you are not alone. Plenty of investors are trying to figure out if the current price still leaves room for value.
• The stock has slipped recently, down about 2.7% over the last week, 3.8% over the past month, and 2.5% year to date, yet it still sits on gains of 89.6% over 3 years and 150.5% over 5 years, which keeps the long term story in focus.
• Much of the recent share price action has been driven by ongoing optimism around Costco's membership model and steady traffic growth, as shoppers continue to prioritize value and bulk buying. At the same time, investors have been weighing macro worries and shifting retail trends, which has added some short term volatility to what has historically been a relatively resilient stock.
• Despite that resilience, Costco currently scores just 0/6 on our valuation checks, suggesting it screens as fully priced or expensive on most traditional metrics. Next we will break down what those methods say, and then return to a more nuanced way to think about Costco's value.

Costco Wholesale scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Costco Wholesale Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company is worth by projecting its future cash flows and then discounting them back to today, using a required rate of return. For Costco Wholesale, the model starts with last twelve months Free Cash Flow of about $8.2 billion and uses analyst forecasts for the next few years, then extrapolates further growth beyond that point.

Under this 2 Stage Free Cash Flow to Equity approach, Simply Wall St projects Costco’s annual Free Cash Flow to rise to roughly $15.7 billion in 10 years. This reflects healthy but gradually slowing growth over time. When all those projected cash flows are discounted back to today in $, the model arrives at an intrinsic value of about $690 per share.

Compared with the current share price near $887, the DCF suggests Costco is roughly 28.6% overvalued on this cash flow basis. This implies that a lot of future growth is already priced in.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Costco Wholesale may be overvalued by 28.6%. Discover 906 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Costco Wholesale.

Approach 2: Costco Wholesale Price vs Earnings

For profitable companies like Costco, the Price to Earnings (PE) ratio is a useful shorthand for how much investors are willing to pay for each dollar of current earnings. It naturally reflects expectations for future growth and the perceived risk of those earnings continuing. Faster growing, more resilient businesses typically deserve a higher, or premium, PE, while slower or riskier ones tend to trade on lower multiples.

Costco currently trades at about 48.7x earnings, which is more than double the Consumer Retailing industry average of roughly 21.5x and also well above the peer average of about 23.4x. To go a step further, Simply Wall St calculates a proprietary Fair Ratio of 34.7x for Costco, which estimates what a reasonable PE should be once factors like the company’s earnings growth outlook, margins, industry positioning, market cap, and risks are all considered. This Fair Ratio offers a more tailored yardstick than simple peer or industry comparisons because it adjusts for Costco’s specific strengths and risk profile.

Comparing Costco’s actual 48.7x PE to the 34.7x Fair Ratio suggests the shares are trading at a meaningful premium to what those fundamentals justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Costco Wholesale Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to numbers like fair value, and your own estimates for future revenue, earnings, and margins. A Narrative connects what you believe about Costco Wholesale’s competitive edge, growth opportunities, and risks to a concrete financial forecast, and then to a fair value that you can compare against today’s share price to decide whether it looks like a buy, hold, or sell. Narratives on Simply Wall St, available to millions of investors via the Community page, are easy to create, compare, and follow, and they update dynamically whenever new information such as earnings, guidance, or major news arrives. For example, one Costco Narrative might argue that expanding international warehouses and resilient membership income justify a fair value near the higher analyst target of about $1,225 per share, while a more cautious Narrative might focus on margin pressure, FX risk and an already rich multiple, arriving closer to the low end near $620 per share.

Do you think there's more to the story for Costco Wholesale? Head over to our Community to see what others are saying!

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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