Is Costco’s Premium Justified as Xbox Products Disappear from Online Shelves?

If you're sitting there weighing what to do with your Costco Wholesale shares or wondering whether now is the right moment to buy in, you're hardly alone. After all, with a stock that has returned over 160.8% over the last five years and more than doubled just in the last three, Costco always draws plenty of attention. But investors have seen some bumps lately. In the past month, the stock has slipped 5.1%, including a modest 1.2% drop over the last week. Year-to-date gains are barely positive at 0.5%, and even the one-year return sits at just 3.3%. That’s still up, but it feels tentative compared to the rocket ride long-term holders have enjoyed.

Some of the recent headlines help provide context, such as Costco’s decision to remove Xbox products from its U.S. and U.K. websites, a shift that has caught the eye of retail enthusiasts and may signal evolving strategies for its online offerings. Meanwhile, Roth Capital recently said Costco’s valuation leaves “little room for error,” pointing out that same-store sales growth in the U.S. has decelerated a bit. It all adds up to a perception that while this retail juggernaut is still performing, risk sentiment around the stock might be shifting from enthusiasm to a more watchful caution.

Now, here’s where things get interesting. According to our valuation score, where a higher number means more signs of the stock being undervalued, Costco clocks in at 0 out of 6. That’s a red flag if you’re hoping for a bargain, but as we’ll explore in the next section, sometimes the true value of a powerhouse like Costco isn’t so easily captured by standard methods. Let’s dig into how the usual valuation scores stack up, and then talk about the smarter way to judge what Costco is really worth.

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 the intrinsic value of a stock by projecting the company’s future free cash flows and discounting them back to today's value. This approach is often used to weigh what a business might truly be worth, looking beyond short-term swings to its underlying ability to generate future cash.

For Costco Wholesale, the most recently reported Free Cash Flow stands at $8.16 billion. Over the next five years, analysts expect continued growth, with projections reaching $12.25 billion in 2030. It is important to note that while analyst estimates only provide guidance for the next few years, Simply Wall St extrapolates these figures further into the future for this valuation.

Based on the 2 Stage Free Cash Flow to Equity DCF model, the estimated intrinsic or fair value of Costco’s shares comes in at $687.00. This is 33.2% below the current trading price, which means the stock is considered overvalued from this DCF perspective.

Result: OVERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Costco Wholesale may be overvalued by 33.2%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Costco Wholesale Price vs Earnings

For profitable companies like Costco, the Price-to-Earnings (PE) ratio is a key valuation metric as it directly links a company’s market price with its underlying earnings per share. Because earnings reflect both the business’s profitability and its efficiency, the PE ratio helps investors understand how much the market is paying for each dollar of earnings.

It is important to note that what counts as a “normal” or “fair” PE ratio depends on several things. Companies expected to grow faster or face less risk typically earn a higher PE, because investors are willing to pay more now for potentially larger earnings down the road. Conversely, if growth is expected to slow or if risk increases, a lower PE becomes the norm.

Currently, Costco trades at a PE ratio of 50.1x. This stands well above the peer average of 21.8x and the broader consumer retailing industry average of 20.6x, highlighting that investors are pricing in a serious growth premium. But how do we know if this premium is truly justified?

This is where Simply Wall St’s proprietary Fair Ratio comes in. It sets the “right” PE by weighing more factors than peer or industry averages alone, including Costco’s expected earnings growth, risk profile, profit margins, and overall size. Unlike a straightforward average, the Fair Ratio is designed to tailor the benchmark to the specific features and forecasts of each company.

For Costco, the Fair Ratio is currently 29.4x, considerably below its actual PE of 50.1x. This indicates the shares are strongly overvalued relative to what would be justified by their growth and earnings prospects, even after accounting for Costco’s premium qualities.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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. Let's introduce you to Narratives. A Narrative is simply your story about a company, your view of where Costco is headed and what that means for its financial future. Instead of relying only on traditional ratios, a Narrative lets you connect your investment thesis to the numbers by setting your own fair value and forecasts, like projected revenue, profit margins, and long-term growth.

With Narratives, you bring together your perspective on Costco’s business drivers, such as warehouse expansion, e-commerce growth, or membership strategies, and see how your outlook translates into a fair value estimate. This feature, available in the Community page on Simply Wall St and used by millions of investors, makes it easy for anyone to map their story to the numbers, compare fair value to market price, and decide when to buy, sell, or hold.

What makes Narratives truly dynamic is that they update automatically as new information, like earnings or news, comes in so your investment thesis stays current. For example, one investor might believe strong e-commerce momentum supports a fair value of $1,225 per share, while another may see slower growth ahead and estimate just $489. This highlights how Narratives turn personal insights into actionable investment decisions.

For Costco Wholesale, we'll make it really easy for you with previews of two leading Costco Wholesale Narratives:

• 🐂 Costco Wholesale Bull Case

  Fair Value: $1,061.20

  Currently trading at about 13.8% below this narrative's fair value

  Expected Revenue Growth: 7.4%

  • Growth is driven by aggressive expansion of warehouse locations, longer gas station hours, and rising e-commerce and international investments.
  • Analysts project annual revenue growth of 7.4% and margin improvements to support future earnings, but these depend on continued operational execution and cost discipline.
  • Key risks include foreign exchange swings, higher labor and supply chain costs, and uncertainty around future trade policies or competitive threats.
• 🐻 Costco Wholesale Bear Case

  Fair Value: $489.26

  Currently trading at about 86.9% above this narrative's fair value

  Expected Revenue Growth: 4.2%

  • This view cautions that Costco's premium valuation is hard to justify without significant outperformance, even as e-commerce and Kirkland brand initiatives help margins.
  • To match its current multiple, Costco must achieve top-tier growth in warehouses and emerging market expansion, plus continue success in its private-label and e-commerce strategies.
  • Risks include reliance on raising membership fees, slower than expected sales growth (especially internationally), and a possible valuation "re-rating" lower if expectations are not met.

Do you think there's more to the story for Costco Wholesale? Create your own Narrative to let the Community know!

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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