Should Investors Rethink Costco After Expansion Plans and a 96% Three-Year Gain?

• Wondering if Costco stock is still worth your hard-earned cash, or if it’s gotten too pricey? Let’s dive in together and see what the numbers really say.
• Despite some choppiness lately, with shares down 3.4% over the past week and a small dip of 0.5% across the last month, Costco has delivered a 4.3% gain for the year and a remarkable 96.3% return over the past three years.
• This month, headlines focused on Costco’s new store openings and bold expansion plans. These moves reinforce its reputation for consistent growth. The excitement around its international push and updated membership offerings has investors debating whether recent price moves reflect new opportunities or fresh risks.
• Costco currently lands a valuation score of 0 out of 6. By several standard checks, this suggests it may be fully valued or even pricey right now. Let’s break down exactly how we arrive at that score in the next section and, even more importantly, look at what makes for a smarter way to judge value that goes beyond traditional methods.

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 true value of a company by projecting its future cash flows and discounting them back to today. In simple terms, it answers the question, "What is all the future cash flow worth in today’s dollars?"

For Costco Wholesale, the latest reported Free Cash Flow is $8.16 billion, reflecting strong generation of cash by its underlying business. Analyst forecasts extend out over the next five years, starting at $7.75 billion in 2026 and rising to $12.25 billion by 2030. After this, Simply Wall St extrapolates further annual growth by considering recent business trends and industry expectations. They estimate Free Cash Flow will continue rising through the next decade.

Using these projections, the DCF model calculates Costco’s intrinsic value at $686.26 per share. When compared to the company’s current price, this valuation implies the stock is trading at a 33.0% premium to its intrinsic value. In other words, while Costco remains a robust and growing business, the DCF approach suggests the current market price is higher than what future cash flows justify.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Costco Wholesale may be overvalued by 33.0%. Discover 848 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 metric for valuing profitable companies like Costco Wholesale, as it relates a company’s share price to its actual earnings. Investors often use the PE ratio to gauge how much they are paying for each dollar of a company’s earnings. This makes it particularly relevant for established, consistently profitable businesses.

It is important to recognize that what counts as a “normal” or “fair” PE ratio depends on both growth expectations and risk. Companies with higher expected earnings growth or lower risk profiles typically command higher PE ratios, while slower growth or higher risk pushes the ratio down. As a result, simply comparing PE ratios across different companies does not always give the full picture.

Currently, Costco Wholesale is trading at a PE ratio of 49.9x. This stands well above the average PE for its direct peers at 22.0x and the broader Consumer Retailing industry’s average of 20.4x. On the surface, you might think this implies Costco’s stock is too expensive compared to other retailers.

Simply Wall St’s “Fair Ratio” offers a more comprehensive benchmark. The Fair Ratio calculates what Costco’s PE should be by specifically considering its actual earnings growth, industry profile, profit margins, market capitalization, and risk level. In summary, it takes the bigger picture into account. In Costco’s case, the Fair Ratio is 29.4x, which is much higher than industry and peer averages but still well below Costco’s current PE.

When we compare these numbers, Costco’s current PE is significantly above its Fair Ratio. This means that, even after considering Costco’s growth, margins, and market-leading position, the stock appears to be overvalued on this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1382 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's introduce you to Narratives. A Narrative is a story you create about a company, connecting your perspective on its business drivers—such as store expansion, international growth, online sales, and risks—to your own forecast for revenue, profits, and fair value.

Narratives let you move past just numbers by linking a company’s real-world story to a financial outlook and ultimately to what you think is a fair price. On Simply Wall St’s Community page, millions of investors easily build and update Narratives around companies like Costco, quickly aligning their views with dynamic forecasts and new information as it arrives.

Using Narratives, investors can make smarter buy or sell decisions by comparing their Fair Value calculations to the current share price, and adjusting instantly as earnings or news emerge. For example, some investors have a bullish Narrative on Costco, predicting rapid international expansion and strong e-commerce growth, setting their fair value at $1,225 per share. Others are more cautious, citing higher costs and competitive pressures to justify a fair value as low as $620.

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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