COSTCO WHOLESALE CORP /NEW (COST): what the price requires
At today's price, COSTCO WHOLESALE CORP /NEW (COST) is priced for +30.1% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/COST
Headline
| Field | Value |
|---|---|
| Ticker | COST |
| Company | COSTCO WHOLESALE CORP /NEW |
| Current price | $924.55/sh |
| Composition | Foods and Sundries 41% / Non-Foods 26% / Fresh Foods 14% / Warehouse Ancillary and Other Businesses 19% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 1.8% |
| Operating margin today | 3.8% |
| Margin compression implied | -2.0pp |
| Implied growth | 30.1% |
| Multiple paid | 39x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.6% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.9pp.
How unusual the bet is: extreme
| Reference | Value |
|---|---|
| vs own history | +3.90σ |
| cohort percentile (of 69 peers) | 93 |
| sustained it ~5 years at this level | 23% |
| implied end-window share | 3% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 4.30x | 5 | expensive |
| Earnings | 4.27x | 5 | expensive |
| Relative | 2.02x | 5 | expensive |
| Growth | 1.17x | 3 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $509.20 | 1.82x | yes | FCF base $9.5B, growth 9% (input: historical growth), terminal g 4.0%, WACC 9.1%, 6yr projection |
| DCF Exit Multiple | Growth | $898.97 | 1.03x | yes | Exit EV/EBITDA: 27.0x / 29.0x / 31.0x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $618.21 | 1.50x | yes | P/E 29.35x (blended: sector 22x + trailing (TTM) 46x), scenarios: 24.3x / 29.4x / 34.4x (bear / base = sector held flat / bull), EV/EBITDA 18.5x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $214.99 | 4.30x | yes | BV/sh $75.40, ROE (TTM) 26.4%, ke 9.3% |
| Two-Stage Excess Return | Asset | $367.24 | 2.52x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $791.57 | 1.17x | yes | Rev $293.6B, growth 9% (input: historical growth; tapered), Terminal P/S: 1.2x / 1.4x / 1.6x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $256.84 | 3.60x | yes | EPS $19.88, growth 13% (input: historical EPS growth), PEG=3.60 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $202.55 | 4.56x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $9.19B × (1−21%) / WACC 9.1% → EPV (no growth) |
| Residual Income | Asset | $320.90 | 2.88x | yes | BV $75.40 + 5yr PV of (ROE (TTM) 26.4% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $183.64 | 5.03x | yes | √(22.5 × EPS $19.88 × BVPS $75.40) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $458.72 | 2.02x | yes | EBITDA $13.79B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $238.53 | 3.88x | yes | FCF $8806.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $216.37 | 4.27x | yes | SBC-adj FCF $7.89B (FCF $8.81B − SBC $0.91B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $572.13 | 1.62x | yes | EPS $19.88 × (8.5 + 2×12.9%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $81.38 | 11.36x | yes | BV $75.40 × (ROIC 9.8% / WACC 9.1%) |
| P/Sales Sector | Relative | $1321.18 | 0.70x | yes | Revenue $293.59B × sector P/S 2.0x |
| PEG Fair Value | Relative | $385.26 | 2.40x | yes | EPS $19.88 × (PEG 1.5 × growth 12.9% (input: historical EPS growth)) → PE 19.4x |
| Earnings Yield | Earnings | $214.92 | 4.30x | yes | EPS $19.88 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $12.8b |
| Net debt / NOPAT (after-tax) | -1.56x (net cash) |
| Net debt / operating income (pre-tax) | -1.23x (net cash) |
| Interest coverage | 77.1x |
| Share count CAGR (dilution) | 0.0% |
| Burning cash | no |
Bullet Takeaways
- Costco is the membership-warehouse model in its purest form: it sells goods near cost and earns its profit on the annual fee. Q3 2026 net sales rose 11.6% to $69.2B, comparable sales were up 9.8% (6.6% ex gas and FX), and membership fee income grew 10.7% to $1.37B with 41.2 million executive members.
- The price sits above almost every valuation lens. At $951.81 (as of June 27, 2026) only the forward-growth and exit-multiple methods reach it; the asset, earnings-power, and peer-multiple families all land far below, near $200 to $460. The blended X-ray near $438 is less than half the price.
- Inverting the price implies roughly 32% annual operating-income growth for five years, a pace well above what Costco has actually delivered. The quality is real; the question is whether any execution justifies a multiple this far above the methods.
Bull Case
Lead with how far the price sits above the methods, because that gap is the whole debate. At $951.81 only two of the valuation families, the forward-growth DCF and the exit-multiple model, reach the price. Every other lens lands well below: the relative-multiple view near $627, residual income near $321, simple excess return near $215, and Earnings Power Value near $202. The blended X-ray sits near $438, less than half the quote. A spread that wide means the market is paying for something the static frames cannot capture, and with Costco that something is the durability and predictability of the membership engine.
The engine is unusually clean. Costco's 10-K describes the warehouse format as "designed to reinforce member loyalty and provide continuing fee revenue" (accession 0000909832-25-000101), and the latest quarter shows why that matters: membership fee income grew 10.7% to $1.37B, executive memberships reached 41.2 million up 9.6%, and renewal rates run in the low-to-mid 90s. That fee income is nearly all profit, it is recurring, and it grows with the member base and with periodic fee increases. The 2024 fee increase, the first in seven years, contributed roughly a third of fee growth in the quarter, and it flows straight to operating income with no offsetting cost. On top of that, comparable sales were up 9.8% (6.6% adjusted for gas and FX) and digitally enabled comparable sales grew 21.5%, so the merchandising flywheel is accelerating, not maturing.
The balance sheet removes the usual risk that haunts a premium multiple. Costco holds net cash near $12.8B, interest coverage near 77x, and a return on equity near 26%. Management guides fiscal 2026 to EPS near $20.52 on revenue near $299B, and fiscal 2027 to EPS near $22.54 on revenue near $323B. The bull case is not that the methods are wrong; it is that they cannot price a fortress of recurring fee income, a member base that renews above 90%, and a merchandising machine still posting high-single-digit real comps at this scale. Investors have paid up for that combination for years, and the business has kept validating the price.
Bear Case
The competitive threat to name first is not a warehouse rival but the structural pressure on physical retail margins from the largest players. Walmart, with its scaled e-commerce and Walmart+ membership, and Amazon, with Prime and same-day grocery, are both pushing into the value-and-convenience space Costco owns, and both can subsidize price more aggressively across a broader business. Costco's defense is its renewal rate and its treasure-hunt assortment, but if Walmart+ or Amazon erode the relative value proposition even slightly, the membership growth and renewal rates that justify the premium come under pressure. The bear case starts here because the multiple has no room for the membership flywheel to slow.
The valuation makes that fragility concrete. At $951.81 the price implies about 32% annual operating-income growth for five years, a pace well above what Costco has historically delivered, and the company's own history shows the assumed rate runs far ahead of reality. Only about a quarter of comparable fast-growers have sustained that level for five years. The relative-multiple lens at a blended 30x P/E lands near $627, the Peter Lynch screen flags it overvalued at a PEG near 3.7, and the Earnings Power Value near $202 says that on a no-growth basis the business is worth a fifth of the price. None of this means Costco is a bad company. It means the price has priced in flawless execution and then some.
The third risk is simply the math of a high base. Costco trades near 40x operating income; even a modest deceleration in comps or a single membership-fee cycle that disappoints could trigger a multiple compression, and from this level the downside in a derating is large. Gross margins are deliberately thin, so the merchandise business has little cushion to absorb tariff costs or input inflation without raising prices that test member loyalty. The dividend yield is negligible, so there is no income support if the stock derates. The bet against Costco is not about the business quality, which is excellent. It is that paying roughly twice what the valuation methods support requires the membership and comp engine to keep compounding at a rate that even the company's own track record makes look optimistic.
Valuation
At $951.81, inverting the price puts Costco at roughly 40x company-wide operating income, which solves to about 32% annual operating growth over a five-year stage at an 8.7% cost of capital. That assumed pace runs well above what the company has actually delivered, and the multiple sits at the very top of the consumer-staples peer distribution, beyond the upper quartile. Each percentage point of cost of capital moves the implied growth figure by about 8 points, so the read is rate-sensitive, but the level is demanding under any reasonable rate.
The model families split as sharply as they do for any premium compounder. Only the growth lens reaches the price, with the exit-multiple DCF near $922 and DCF perpetual growth near $509. Everything else lands far below: relative valuation near $627, residual income near $321, two-stage excess return near $367, simple excess return near $215, and Earnings Power Value near $202. The blended X-ray near $438 is less than half the price. The pattern is unambiguous: the price is a bet on durable compounding that the asset and earnings-power frames structurally cannot price.
The valuation conclusion is that quality is not in dispute; the price is. A net-cash balance sheet, a 26% ROE, and a recurring fee stream that renews above 90% are exactly why the static methods understate a business like this, but a gap of roughly 2x between the price and the blended methods leaves no margin for error. The deciding variable is whether membership and comparable-sales growth hold near recent levels for years; if they fade toward the company's longer-run average, the gravity of the conservative methods is large.
Catalysts
Membership metrics are the catalyst that matters most. Fee income grew 10.7% to $1.37B in Q3 2026 with 41.2 million executive members, and the 2024 fee increase is still flowing through. Watch quarterly renewal rates, executive-member penetration, and any signal on the next fee-increase cycle, since each contributes high-margin, recurring income directly to the bottom line.
Comparable sales and digital growth are the merchandising read. Q3 2026 comps were up 9.8% (6.6% ex gas and FX) and digitally enabled comps grew 21.5%. Continued high-single-digit real comps would validate the premium; a deceleration would pressure it. Warehouse-opening cadence, both domestic and international, is the unit-growth lever to track.
Guidance frames the bar. Management points to fiscal 2026 EPS near $20.52 on revenue near $299B and fiscal 2027 EPS near $22.54 on revenue near $323B. The next earnings reports test whether Costco holds or beats that trajectory. Tariff and input-cost pressure on the thin merchandise margin, and competitive moves from Walmart+ and Amazon, are the external variables most likely to disturb the thesis.
Sources: Costco Q3 2026 results (StockTitan), Costco Q3 2026 transcript (Motley Fool), Costco membership fee increase (Motley Fool)
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- BJ (BJ’S WHOLESALE CLUB HOLDINGS, INC.)
- (no filing in the citation store)
- WMT (WALMART INC.)
- (no filing in the citation store)
- TGT (TARGET CORPORATION)
- (no filing in the citation store)
- DG (DOLLAR GENERAL CORP)
- (no filing in the citation store)
- DLTR (DOLLAR TREE, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.