COSTCO WHOLESALE CORP /NEW (COST): what the price assumes

In the published model solve dated 2026-Q2, anchored at $946.00, COSTCO WHOLESALE CORP /NEW (COST) is priced for +28.2% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-08-06.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/COST

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 8.6% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: high (limited comparison data)

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.

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)

Solvency

Bullet Takeaways

• Costco turns deliberately low merchandise margins into purchasing scale and recurring fees; the filing calls the format "designed to reinforce member loyalty and provide continuing fee revenue".
• The specific risk is the gap between the roughly 28% annual operating-profit growth embedded in the price for five years and Costco's roughly 11% historical pace.
• Fiscal Q3 2026 net sales "increased 12% to $69,154" million, and the next useful tests are the July sales update and fiscal Q4 results.

Bull Case

A retailer normally proves its advantage by earning a wider margin than competitors. Costco does something harder to copy: it keeps merchandise margins deliberately thin, converts the savings into member traffic, and earns the return through volume and recurring fees. The annual filing describes a format "designed to reinforce member loyalty and provide continuing fee revenue". That is the moat in one sentence. Low prices are not a promotion layered onto the model; they are the mechanism that keeps the buying pool large enough to support Costco's purchasing scale.

The membership relationship turns that scale into durable economics. Costco says that growth in its membership base, greater Executive-membership penetration, and high renewal rates "materially influences our profitability". The fiscal Q3 filing states, "At the end of the third quarter of 2026, our renewal rates were 92.2% in the U.S. and Canada and 89.7% worldwide". That persistence gives management room to pass merchandise savings back to members while the fee stream continues. The concession is that digitally acquired memberships renew at a slightly lower rate on average, according to the same filing. The counter-mechanism is scale: more members create more purchasing volume, and more volume reinforces the price advantage that supports renewal.

Recent operating evidence shows the loop still turning. For fiscal Q3 2026, Costco reported that "Net sales increased 12% to $69,154" million, driven by comparable sales and 23 net new warehouses. Foods and Sundries supplies 41% of revenue, Non-Foods 26%, Fresh Foods 14%, and Warehouse Ancillary and Other Businesses 19%, so the growth is carried by frequent-purchase categories rather than a single discretionary product cycle. The U.S. and Canada have also expanded revenue over the recent regional record while Canada earns the stronger operating margin. This is a broad, repeatable retail engine.

Expansion adds another turn to it. Costco opened 27 warehouses in fiscal 2025, including three relocations, for 24 net additions, with seven net additions in Other International markets. The filing also makes clear that new-market execution is not automatic, but a self-funded format with high renewal and positive free cash flow can learn without asking shareholders to finance each attempt. The bull case does not require Costco to become a high-margin retailer. It requires the company to keep earning unusually productive returns from a low-margin design that members repeatedly choose.

Bear Case

Balance-sheet strength is the least controversial part of Costco's case. Operating profit covers interest expense about 77 times, free cash flow is positive, and the share count was essentially flat over the four years ending May 10, 2026. Those facts remove financing stress from the argument. They also leave the investor exposed almost entirely to operating expectations, because a strong balance sheet cannot make an expensive purchase price compound faster.

At $942.06, the market is paying for company-wide operating profit to grow about 28% a year for five years. Costco's own operating history averaged about 11%, the current assumption sits beyond the upper quartile of its cohort, and only about 26% of comparable fast-growers sustained a similar pace for roughly five years. The operating-income window ending May 10, 2026 is $11.225B. A fine business can miss that growth requirement without becoming a bad business. The multiple would then have to do the adjusting.

The filing identifies exactly where that deceleration could come from. Costco states that its stock price reflects "high market expectations for our future operating results", including comparable-sales growth and membership-fee performance. It also warns, "We may not be able to adjust prices to sufficiently offset the effect of cost increases without negatively impacting consumer demand". The model protects member value by limiting markups, so merchandise inflation, tariffs, or higher labor costs reach a narrow operating spread quickly. Raising price can weaken the promise; absorbing cost can weaken profit.

Mix creates a second tension. The annual filing says "Our e-commerce business, domestically and internationally, has a lower gross-margin percentage than our warehouse operations". Digitally enabled sales are growing quickly, but channel growth that carries lower merchandise economics is not automatically the operating-profit acceleration embedded in the price. Meanwhile, competition remains "vigorous and widespread" across wholesalers, retailers, and e-commerce operators. Costco's loyalty engine is real, but it operates in markets where price comparison is constant.

Geographic concentration makes the expected smoothness harder still. U.S. and Canadian operations represented 86% of fiscal 2025 net sales and 84% of operating income, and the filing says the company is highly dependent on those regions. International openings can diversify the base, but new markets bring local preferences, established competitors, and weaker early renewal economics. The bear case is therefore not insolvency. It is the ordinary retail friction of costs, mix, and expansion meeting a price that assumes an extraordinary five-year operating run.

Valuation

The operating-income window ending May 10, 2026 is $11.225B, and the $942.06 share price values that stream at a multiple in the mid-30s. Put into operating terms, the price assumes company-wide profit growth of about 28% a year for five years. Costco has averaged about 11% across its own history, so the premium is a wager that the membership model can accelerate from an already enormous base rather than merely remain durable.

The latest filing supplies evidence for durability, though not for the full pace embedded in the price. Fiscal Q3 2026 net sales "increased 12% to $69,154" million, while the income statement reports operating income of $2.815B for the quarter versus $2.530B a year earlier. The same filing says sustained renewal and Executive-membership penetration "materially influences our profitability". Those are the correct operating inputs for the valuation debate: member persistence, sales growth, and the conversion of a very large revenue base into operating profit.

The valuation methods divide cleanly. The central asset-value estimate sits roughly 4.4 times below the market price, the earnings-power estimate roughly 4.4 times below, and the peer-multiple estimate about 2.2 times below. Growth methods come closest, with their central result about 1.2 times below the price. The exit-multiple cash-flow case nearly reaches the market only by holding today's 31.3 times EV-to-EBITDA multiple flat through a six-year projection; its scenarios compress to 29.3 times or expand to 33.3 times around that unchanged base. Static methods cannot capitalize the loyalty loop very well, but the forward method still needs durability in both operations and the terminal multiple.

The assumption is demanding from several directions. It stands well above Costco's own operating record, near the top of the peer distribution, and in a historical bucket where only about 26% of comparable fast-growers maintained the pace for roughly five years. The result is also rate-sensitive: a one-percentage-point change in the cost of capital moves the required operating-growth estimate by about 7.6 percentage points. That makes 28% a description of the market's bet under the stated assumptions, not a forecast.

Financing risk is not doing the analytical work here. Interest coverage is about 77 times, free cash flow is positive, and the share count has been essentially unchanged over four years. The balance sheet can support continued warehouse investment without forcing dilution, but it does not bridge the distance between the static methods and the market price. Continued member renewal and double-digit operating progress must do that work.

Catalysts

Monthly sales provide the nearest operating read. For the five weeks ended July 5, 2026, Costco reported June net sales of $29.24B, up 10.6% from a year earlier, while comparable sales excluding gasoline-price and currency changes rose 7.0% and digitally enabled comparable sales rose 21.5%. The mix matters: sustained warehouse traffic supports membership economics, while the faster digital channel carries a lower gross-margin percentage than warehouse operations.

Costco's investor calendar lists July sales results for August 5, 2026 and fiscal Q4 2026 results and the earnings call for September 24, 2026. The July update is the immediate check on whether adjusted comparable growth remains firm. The September report will add the more important evidence: membership-fee growth, renewal behavior, operating-profit conversion, and the pace of warehouse additions over the full fiscal year.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• BJ (BJ’S WHOLESALE CLUB HOLDINGS, INC.)
• FY2025 10-K: …We depend heavily on our ability to purchase merchandise in sufficient quantities at competitive prices and in a timely fashion. We source our merchandise from a wide variety of domestic and international vendors. Finding qualified vendors who meet our standards and acquiring merchandise in a timely and efficient…
• FY2025 10-K: …estimated impact of returns, was $ 5.4 million in each of fiscal years 2024 and 2023, respectively, and $ 6.1 million in fiscal year 2022. Actual sales returns were $ 221.7 million, $ 220.7 million, and $ 228.9 million in fiscal years 2024, 2023 and 2022, respectively. Customer Discounts Discounts given to customers…
• WMT (WALMART INC.)
• FY2025 10-K: …in certain merchandise categories; focusing on opening price points for certain food categories; and when necessary, passing cost increases on to our customers and members. Merchandising strategies include, but are not limited to: working with our suppliers to reduce product costs and share in absorbing cost…
• FY2025 10-K: …clubs and supermarkets, as well as eCommerce, health and wellness, financial services, advertising and data service businesses. Many of these competitors are national, regional or international chains or have a national or international omni-channel or eCommerce presence. We compete with a number of companies for…
• TGT (TARGET CORPORATION)
• FY2025 10-K: …and Analysis of Financial Condition for 2023, as compared to 2022, is included in Part II, Item 7, MD&A to our Annual Report on Form 10-K for the year ended February 3, 2024 . Net Sales Net Sales includes Merchandise Sales and revenues from other sources, most notably advertising revenue and credit card…
• FY2025 10-K: …of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible. TD Bank Group offers credit to qualified guests through Target-branded credit cards: the Target Credit Card and the Target MasterCard Credit…
• DG (DOLLAR GENERAL CORP)
• FY2025 10-K: …service offerings, product sourcing and supply chain capacity, in-stock consistency, customer service, ease of shopping experience (including but not limited to various modes of shopping, including online alternatives and delivery), promotional activity, employees, and market share. We compete with discount stores…
• FY2025 10-K: …operate stores in many of the areas where we operate, and many of them engage in extensive advertising and marketing efforts. Our direct competitors include Family Dollar, Dollar Tree, and various local, independent operators, as well as Walmart, Target, Kroger, Aldi, Costco, Sams Club, BJ's Wholesale Club,…
• DLTR (DOLLAR TREE, INC.)
• FY2025 10-K: …operations and financial condition of our continuing operations. Overview We are a leading operator of more than 8,800 retail discount stores, as of February 1, 2025, offering merchandise predominantly at the opening price point of $1.25, with additional offerings at higher price points. Our net sales are derived…
• FY2025 10-K: …our prices, but our ability to do so may be limited with the result that we could see lower sales or reduced profitability. We expect competition to increase in the future. There are no significant economic barriers for others to enter our retail sector. We compete with discount stores and many other retailers,…

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.