Is Costco’s 2025 Pullback a Sign of Better Value or Waning Optimism?

• Ever wondered if Costco Wholesale’s premium price tag is giving you real value or just riding on its reputation? Here’s a closer look at what’s really behind the numbers.
• While the stock has delivered an impressive 148.9% total return over the past five years, it is down 1.2% year-to-date and has dipped 6.0% in the past year. This could signal shifting investor expectations or opportunities.
• Recently, big headlines have focused on changing consumer spending patterns and Costco’s ongoing membership growth. Analysts have highlighted its strategic store openings and continually evolving product line. These factors contribute to the excitement and caution reflected in recent price moves.
• Looking at traditional valuation checks, Costco scores 0 out of 6 for being undervalued, so something may not be adding up. Next, we’ll break down the valuation approaches that determine this score and later introduce a different way to consider whether Costco deserves a spot in your portfolio.

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

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to today's dollars. This approach aims to answer what Costco Wholesale's shares are truly worth, based on how much money the company is expected to generate in the years ahead.

Currently, Costco's Free Cash Flow (FCF) stands at $8.2 Billion. Analysts provide growth estimates for the next five years, projecting FCF to reach $10.7 Billion by August 2028. For years beyond that, cash flow projections are extrapolated based on industry trends and company performance. Projections reach $15.7 Billion by 2035. These figures reflect not only robust analyst expectations but also anticipated ongoing growth as the company expands operations and membership globally.

Using these inputs, the two-stage DCF model calculates an intrinsic value of $691.44 per share. Compared to recent share prices, this implies Costco is trading at a 30% premium to its calculated fair value. In other words, the stock appears overvalued according to the DCF approach.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Costco Wholesale may be overvalued by 30.0%. Discover 921 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

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies such as Costco Wholesale. It reflects how much investors are willing to pay for each dollar of the company’s earnings, making it a suitable metric for businesses that have consistent profitability.

A company’s “normal” or “fair” PE ratio isn’t just about current earnings. Growth expectations, profitability, and risks play a major role. Higher growth and lower risk typically justify a higher PE ratio, while companies facing big risks or slow growth usually trade at a lower PE ratio.

Currently, Costco trades at a PE ratio of 49.2x. This stands well above the Consumer Retailing industry average of 20.9x and the peer group’s average of 21.7x. Such a significant premium hints at strong investor confidence in Costco’s growth potential and resilient business model.

Simply Wall St’s “Fair Ratio” for Costco, based on its earnings growth, margins, risk profile, and industry position, is 33.2x. Unlike a simple industry or peer comparison, the Fair Ratio provides a more tailored sense of what investors should reasonably pay, factoring in everything from Costco’s scale and profitability to its future prospects and risks.

Since the stock’s current PE of 49.2x is well above its Fair Ratio of 33.2x, this suggests that Costco is overvalued based on the earnings multiple approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Costco Wholesale Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own story of how you think a company’s future will unfold, putting your assumptions about fair value, future revenue, earnings, and margins into a clear forecast that connects directly to the company’s underlying story.

Narratives are more than just numbers; they weave together your view on Costco Wholesale’s business drivers with projected financial outcomes and a calculated fair value. This makes it easy to see how your perspective compares to current prices and other investors’ views, right inside Simply Wall St’s Community page, a tool used by millions of investors worldwide.

By building a Narrative, you can quickly decide if and when to buy or sell, since it's constantly updated with the latest news, earnings releases, or major events. For example, one Narrative might use highly optimistic forecasts to justify a fair value of $1,225 per share, while another uses more conservative revenue and margin estimates to settle closer to $620. Both can instantly update as new information arrives.

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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