Costco (COST) — Q2 FY2026 Equity Research Report
Before Anyone Else Knew
In February 2026, Costco reported that 924 warehouses served more than 77 million paid member households — and those households spent nine percent more than the year before, not because they had to but because they chose to. That distinction — the voluntary return, the renewed membership card, the Sunday morning ritual of the warehouse run — is the whole story. Costco built the only retail business in the world where the customer pays for the right to spend money, and keeps paying year after year with a renewal rate above 93%.
There's a story that gets told about Costco in the early 1990s, when the concept was still young enough to seem eccentric. A retailer that charged customers for the privilege of shopping. A grocery store that sold cashmere sweaters and automobile tyres in the same aisle. A food operation that ran on less than four percent gross margin at a time when supermarkets considered eight percent dangerously thin. Wall Street, for most of that decade, wasn't sure what to make of it.
What they missed — what most observers always miss about Costco, right up until the moment they don't — is that the business model is structured backwards from everything else in retail. The profit doesn't come from the merchandise. The merchandise is almost a loss leader, offered at pricing that the company publicly commits to never exceeding fifteen percent above cost. The profit comes from the membership fee. And the membership fee is only worth paying if the members believe, viscerally and repeatedly, that the deal on the other side is genuinely better than anything else available to them.
That dynamic creates a feedback loop unlike almost anything else in consumer retail. When Costco wins on price, members renew. When members renew, Costco gets a float of predictable, recurring revenue that funds the next round of pricing investment. The moat doesn't widen because Costco spends more on marketing. It widens because each renewal is a vote of confidence, and each vote of confidence gives the company more latitude to cut prices further. Ninety-three percent of members in the United States and Canada renewed their membership in the second quarter of fiscal 2026. That number has barely moved in a decade.
By the time the second quarter results landed on March 5, 2026, the headline figures — nine percent sales growth, fourteen percent earnings growth, comparable sales of 7.4 percent adjusted for fuel and currency — were exactly the kind of numbers a disciplined analyst would have predicted from the model. What the model doesn't easily capture is the twenty-two percent growth in digitally-enabled sales, or the acceleration in international comparable sales to thirteen percent, or the fact that Foods and Sundries, the category that accounts for nearly forty percent of net sales, grew ten-plus percent as families leaned harder into Costco's food proposition during a period of persistent grocery inflation.
Costco's second quarter of fiscal 2026 was not a surprise. It was a confirmation — of renewal rates, of digital momentum, of international expansion, and of the enduring logic of a business that charges for access and earns loyalty by under-promising on price and over-delivering on value. The story that nobody knew at the start is now the story that everybody knows. The question the rest of this report tries to answer is whether the price already reflects that.
Three Recorded Waypoints. One Current Signal.
The single most valuable thing you can know about a company is what it looks like when the market gets it wrong. Not the gradual kind of wrong, where a stock drifts below fair value and slowly corrects. The dramatic kind — where a business reports its best quarter in fifteen years and the stock falls anyway. Costco has been misevaluated at every major inflection point since 2020. Understanding how the GPS read each one is the prerequisite for understanding what it is saying today.
The GARPify GPS tracks three factors simultaneously: whether the price trend is rising or falling, whether the market is becoming more or less generous with what it pays per dollar of earnings, and whether the underlying business is still compounding. A waypoint is set when two or more of those factors change direction at the same time. What follows are the four waypoints the GPS has recorded for Costco — and where it stands today. How waypoints are set → garpify.com/methodology
| # | GPS Signal | Date | Price | Fwd PE | EPS gr. | Stage |
|---|---|---|---|---|---|---|
1 | Coiled Spring | Oct 2015 | ~$148 | ~26× | +18% | 2 |
2 | GARP Sweet Spot | Oct 2018 | ~$210 | ~30× | +15% | 2 |
3 | Sentiment Overshoot | Dec 2021 | ~$570 | ~55× | +12% | 3 |
4 | Coiled Spring | Dec 2022 | ~$440 | ~30× | +17% | 1 |
5 | GARP Sweet Spot | Dec 2023 | ~$688 | 41.1× | +16% | 2 |
6 | Full Momentum | May 2024 | ~$826 | 47.2× | +14% | 2 |
7 | Growth Despite Richness | Dec 2024 | ~$974 | 42.2× | +15% | 3 |
8 | Sentiment Overshoot | Mar 2025 | ~$1,034 | ~62× | +9% | 3 |
9 | Coiled Spring | Dec 2025 | ~$844 | ~46× | +11% | 1 |
● | Growth Despite Richness current | Mar 2026 | $997 | 48.7× | +14% | 3 |
Where the GPS Stands Today
Three factors. One reading. Costco’s price is falling, its earnings multiple is compressing, and its earnings per share are growing faster than at any point in fifteen years. That combination is what the GPS calls Growth Despite Richness — and it raises the same question that has defined Costco’s investment case: is the market correctly identifying a structural problem the numbers have not yet revealed, or is it making the same mistake it made in 2023?
The chart below makes the divergence visible. Costco’s earnings per share compounded steadily for years while the stock barely moved. Then in 2023 the cloud transformation started showing up in the numbers, and the price ran hard to catch up — and then past them. By early 2026, the multiple was at 65 times trailing earnings. Then in March it collapsed, while earnings kept climbing. The gap that opened in March 2026 is what the full report examines.
The Foundation
Costco's moat is not a product, a patent, or a brand in the conventional sense. It is a promise. Charge customers to shop, then give them the best prices on earth, and never break that promise. The renewal rate — above 93% in every geography — is the proof that the promise has been kept. The membership float funds the operations. The volume purchasing power funds the prices. The discipline not to break the model is the competitive advantage that no competitor has ever successfully replicated.
Walk through any Costco warehouse and you are walking through a proof of concept. The parking lot is full on a Tuesday afternoon. The carts are enormous. The product selection — roughly four thousand stock-keeping units, compared to thirty thousand in a typical supermarket — forces a kind of radical curation that most retailers would consider commercial suicide. You don't browse Costco. You buy what's there, because what's there is always priced at a level that makes comparison shopping feel like an insult to your time.
The business model has three working parts. First, the membership fee: gold-standard ($65 annually) or executive ($130 annually), with the executive tier offering a two-percent reward on eligible purchases that effectively returns part of the fee for heavy users. At the end of the second quarter of fiscal 2026, membership fee revenue had grown eleven and a half percent year-over-year to $2.684 billion for the first twenty-four weeks — driven both by last year's fee increase and by continued net new member growth. This revenue line has a cost close to zero. Every dollar of membership fee flows almost directly to operating income.
Second, the merchandise engine. Costco sells from a tightly curated selection at margins it publicly caps at fifteen percent. The result is a gross margin of roughly twelve point nine percent — an astonishingly thin number for a retailer that also operates pharmacies, optical centres, food courts, and petrol stations. The thinness is the feature, not a bug. It is what keeps members renewing, what keeps traffic compounding, and what makes it nearly impossible for a conventional retailer to compete on the merchandise itself.
Third, the float. Because Costco turns inventory quickly — often selling product before the supplier invoice is due — the company routinely operates with negative working capital. Suppliers effectively finance a portion of the business. At the end of the second quarter, accounts payable of $20.6 billion exceeded merchandise inventories of $19.0 billion. That is a float of more than one and a half billion dollars, effectively free short-term financing provided by the supply chain in exchange for the volume Costco delivers.
The Kirkland Signature private label deserves its own paragraph. What began as a generic house brand is now arguably the most trusted private label in American retail — a brand that members actively seek out rather than settle for. Kirkland's penetration into categories from olive oil to cashmere sweaters to tequila creates a margin buffer within the low-margin model that isn't visible on the headline gross margin line but is felt in the earnings trajectory.
Costco's competitive moat is not geography, not technology, and not scale alone. It is the psychological contract between the company and its members: a promise that if you pay the fee, you will always get a better deal here than anywhere else. That promise has never been broken. Ninety-three percent of North American members renewed in the most recent quarter. As long as that number holds, the foundation holds.
Playing a Different Game
Costco is running three growth waves simultaneously. The core North American warehouse model, forty-plus years mature, remains a steady compounder with room to add thirty or more locations annually. International expansion — only a third of the way through its addressable opportunity — is the accelerating wave, with Asia in particular showing unit economics that match or exceed the North American base. The third wave, digital and same-day delivery, is the wave that the valuation does not yet fully reflect.
The first wave — North American warehouses — is in the late stages of its S-curve. There are 634 locations in the United States and Puerto Rico, with only the most underserved markets, secondary cities, and select international border regions remaining as genuine greenfield opportunity. Growth in this wave comes through higher sales per warehouse, not dramatically more warehouses. Average warehouse volumes at Costco have been rising steadily for years, driven by larger basket sizes, more frequent visits, and higher penetration of non-food categories.
The second wave is international. Costco currently operates 176 warehouses outside North America — in Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand — with Mexico's forty-two locations sitting in a structural midpoint between the mature US model and the still-developing markets. International comparable sales grew at thirteen percent in the second quarter, adjusted for currency, compared to six percent for the United States. The international segment generated $908 million in operating income in the first half of fiscal 2026, up twenty-four percent year-over-year. The opportunity here is not incremental. Costco opened its first warehouse in China only in 2019. It has five in Spain. It has three in France. These are countries with large, aspirational middle classes and deeply embedded cultures of paying for quality. The playbook is established. The execution is in the early chapters.
The third wave — digitally-enabled commerce — is the one that most traditional Costco analysis underweights. In the second quarter, digitally-enabled sales grew twenty-two percent. This is not conventional e-commerce cannibalising warehouse traffic; Costco's internal data consistently shows that members who engage digitally visit warehouses more frequently, not less. The digital channel is expanding the wallet share of existing members and opening the door to categories — large appliances, tyres by mail, travel — that were previously limited by warehouse floor space. The company changed its metric this year to "digitally-enabled comparable sales," an acknowledgement that the relevant unit is not "orders placed online" but "value created through digital touchpoints."
Most large-cap retailers are one-wave businesses trying to manage a maturing curve. Costco is running three waves simultaneously, with the second and third waves still in their steepest sections. The bears price Costco on the first wave. The bull case is that the second and third waves combined are larger than the first.
The Scoreboard
Earnings grew fourteen percent in the most recent quarter on nine percent revenue growth — which means the operating leverage is real and measurable. Return on invested capital sits at 22.8%, a number most retailers would consider a fantasy. Free cash flow reached $8.4 billion over the trailing twelve months. The one number that earns honest attention is the PEG ratio: at 4.23 against 14% earnings growth, the market is paying a structural premium that has been the defining characteristic of Costco's valuation for two decades.
The Next Play
At $997 per share, Costco trades at 49 times forward earnings — a premium that has become structural rather than episodic. Against peers, the valuation gap is significant: Walmart trades at 43 times forward earnings, Home Depot at 28 times, Target at 18 times. The bear case is simple and requires no creativity: 49 times earnings for 14% earnings growth is not GARP by any conventional definition. The bull case requires a longer time horizon and a different framework: Costco's earnings growth has been more consistent, more durable, and more predictable than almost any other retailer in history.
| Company | Fwd PE | TTM PE | PEG | 5yr EPS CAGR | ROIC | FCF Margin |
|---|---|---|---|---|---|---|
| COST — Costco | 48.7× | 51.8× | 4.23 | +15.1% | 22.8% | 3.2% |
| WMT — Walmart | 42.9× | 45.9× | 6.14 | +6.8% | 13.6% | 2.1% |
| HD — Home Depot | 22.7× | 24.0× | 3.90 | +7.8% | 19.3% | 7.7% |
| ATD.TO — Couche-Tard | 20.5× | 21.6× | 2.88 | +6.2% | 8.8% | 4.0% |
| AMZN — Amazon | 27.9× | 30.0× | 3.66 | +27.9% | 15.7% | 1.1% |
| Pass | Valuation model | Fair value | PE | Premium |
|---|---|---|---|---|
| ✗ | 5-Year Average PE EPS × 45.6× — the market’s own 5-yr average. Most forgiving model. |
$877 | 45.6× | +14% |
| ✗ | Graham Formula EPS × (8.5 + 2G) — intrinsic value for a growing compounder at 12% CAGR. |
$625 | 32.5× | +60% |
| Phase | Period | PE range | Character |
|---|---|---|---|
| Gradual expansion | 2010–2018 | 21× → 32× | Eight-year drift upward as market reprices the membership model. |
| Aggressive expansion | 2018–Dec 2021 | 30× → 49× | Pandemic re-rating. Peaks at W3 Sentiment Overshoot (Dec 2021). |
| Contraction | 2022 | 49× → 34× | W4 Coiled Spring at the trough (Dec 2022). |
| Aggressive expansion | Nov 2022–Feb 2025 | 34× → 62× | Fee increase + AI re-rating. Peaks at W8 Sentiment Overshoot (Feb 2025). |
| Contraction | Mar 2025–now | 62× → 51× | W9 Coiled Spring Dec 2025. Rolling average at 45× is gravitational centre. |
The Risk
Three inversions. Inversion one — membership renewal rates slip below 90% for the first time in the company's modern history. If that number moves, the entire valuation framework needs to be rebuilt. Inversion two — the tariff environment structurally widens the price gap between Costco and its suppliers in ways that cannot be passed on to members. Costco's promise is a low price. If the cost structure changes and the promise cannot be kept, the renewal rate follows. Inversion three — digital growth cannibalises the warehouse visit rather than extending it. The warehouse visit is not just a transaction — it is an experience that drives the renewal. If digital replaces that experience rather than supplementing it, the unit economics change.
The membership model rests on a single number: 93% renewal rate in North America. Everything downstream from that — the pricing authority, the float, the supplier relationships, the real estate strategy — is a function of that renewal rate holding. If it began to decline, the feedback loop would reverse. Lower renewals mean less revenue to invest in pricing. Less investment in pricing means worse deals. Worse deals mean more attrition. Base rate: Costco's renewal rate has never dropped below 88% in twenty years of available data. The risk is not that membership decays suddenly — it is that it creeps lower over a decade as younger households, more accustomed to subscription fatigue, treat the membership as one of several they cycle through rather than the one they keep for life. The digital competition from Amazon Prime and Walmart+ is the most plausible vector for this slow erosion.
Costco's management explicitly cited tariffs as a risk factor in the second-quarter 10-Q. Government actions in various countries relating to tariffs affect merchandise costs, and the company's exposure depends on the type of goods, rates imposed, and timing. Costco has historically responded to cost increases by working with suppliers to absorb them, shifting sourcing, or buying in advance. But a persistent, broad-based increase in the cost of goods — particularly in the non-foods and fresh categories that are most exposed to import costs — puts the fifteen-percent margin cap under structural pressure. Base rate: Costco navigated the 2018–2019 tariff cycle and the 2021–2022 inflation wave without meaningful damage to its gross margin structure. The specific risk in 2026 is the breadth and duration of any new tariff regime, and whether Costco can continue to credibly promise "best prices" in a world where its competitors face the same input cost environment.
Costco's digitally-enabled sales are growing at twenty-two percent, but management has explicitly disclosed that e-commerce has a lower gross-margin percentage than warehouse operations. As digital penetration rises, the blended gross margin has a structural headwind embedded within it. Today, digital is still a small enough fraction of total revenue that this drag is minimal. If, over the next five years, digital grows to represent fifteen or twenty percent of total revenue — plausible given current trajectory — the gross margin dilution becomes material. Base rate: every major omnichannel retailer has faced this transition. The companies that navigate it best — Target, for example — tend to be those that can use digital volume to lever fulfilment density and reduce per-unit costs. Costco's advantage is that its digital orders are disproportionately large-basket, high-value items that carry better unit economics than typical e-commerce. But the risk is real and worth monitoring in gross margin trend data each quarter.
None of the three inversions is likely in isolation or on a short timeline. The renewal rate is structurally sticky, the tariff exposure is real but manageable for a company with Costco's procurement leverage, and digital margin dilution is gradual. The relevant question for investors is whether the current valuation compensates adequately for these risks — and at a fifty-two times earnings multiple, the margin for error is thin.
The Management
Ron Vachris, who became CEO in January 2024 after thirty-four years at the company, represents the fourth iteration of Costco's executive succession — a lineage that runs from the founders through Jim Sinegal's thirty-year tenure, then Craig Jelinek, and now Vachris. Each transition has been internal. Each successor has come from operations. The management philosophy — frugality, member obsession, employee wages above market — has been preserved through four decades and four CEO transitions. That consistency is not an accident. It is a selection mechanism built into the culture.
The four management decisions that define Costco's identity and compound its long-term value are: the decision to pay employees well above retail industry averages; the decision to limit gross margin to fifteen percent regardless of what the market would bear; the decision to invest in member loyalty rather than marketing; and the decision to grow warehouses slowly, only in markets where the unit economics are clearly demonstrable. Each of these decisions is countercultural in its industry. Each has been maintained for forty-plus years.
The employee economics deserve specific attention. Costco pays starting wages meaningfully above the retail sector average. Its healthcare and retirement benefits are among the most comprehensive in consumer retail. The company's turnover rate for hourly employees is consistently reported to be below ten percent, compared to industry averages above fifty percent. The cost of this policy is real — it appears in the SG&A line. The benefit is invisible in the financials but visible in warehouse execution: well-trained, long-tenured employees who know the products, know the members, and execute at a level that shorter-tenured workforces cannot match.
Ron Vachris's first eighteen months have produced no strategic pivot, no restructuring, and no acquisitions. That is exactly what the model requires. The capital allocation has continued unchanged: a moderate dividend growing in line with earnings, a $4 billion share repurchase authorisation used at a deliberate pace (not a "we need to do something with this cash" pace), and capital expenditure committed to new warehouse openings and the technology infrastructure that supports the digitally-enabled channel. The Piotroski F-Score of 8 out of 9 for the most recent period confirms that the financial statements are telling a story of improving quality across solvency, liquidity, and operating efficiency simultaneously.
The most durable management advantage Costco possesses is not the current CEO — it is the process that produced the current CEO, and will produce the next one. Internally promoted management teams at businesses with embedded cultures and clear values tend to outperform those who recruit for "transformation." Costco doesn't need transformation. It needs execution. The current team is well-suited to deliver it.
The Chart
COST is in a Stage 3 trend on the Weinstein framework — a stage characterised by extended advance from a prior base, high public recognition, and a price that has moved meaningfully above its long-term moving average. The stock made all-time highs above $1,034 in the fourth quarter of 2024 and has since consolidated in a range between $900 and $1,000. The 30-week moving average is flattening but has not rolled over. This is the chart of a great business at a high price — not a breakdown, not a distress signal, but equally not the chart of a stock that is about to make another fifty percent move.
The most important structural observation about COST's long-term chart is that each major correction since 2017 has held above the prior base of the advance. The 2018 correction held at $175. The 2020 pandemic low held at $270. The 2022 bear market low held at $406. The 2025 pullback held at approximately $855. In each case, the stock bottomed well above the prior cycle's starting price. This is the defining characteristic of a Stage 2 name that has graduated into Stage 3 without completing a full Stage 4 decline — the corrections deepen but do not negate the primary uptrend.
The current technical setup shows consolidation near all-time highs. After the October 2024 high near $1,034, COST declined approximately seventeen percent to the $855 area before recovering. That recovery has now retraced the bulk of the decline, and the stock sits approximately three and a half percent below the all-time high. From a Weinstein perspective, the key question is whether the current consolidation represents accumulation ahead of a breakout to new highs — consistent with a Stage 2/3 continuation — or distribution ahead of a more significant correction.
The volume pattern in the recovery from $855 to $997 is constructive: the advance has been accompanied by above-average volume on up-days, which suggests institutional accumulation rather than short-covering. However, the distance from the fifty-two-week moving average ($932) is modest — the stock is not extended in the way it was in October 2024 when it briefly traded at an eighteen percent premium to the yearly average.
COST's chart structure does not signal a top. It signals a stock in the later innings of a major uptrend, consolidating below all-time highs after a meaningful correction. A decisive close above $1,034 on expanding volume would be a technical confirmation of Stage 2 resumption. A break below $900 on expanding volume would be a warning that Stage 3 is transitioning to Stage 4 — and at that point, the fundamental story would need re-examination through the lens of what changed.
Chart 2 answers the second question honestly. Every price-based model shows a premium. The most forgiving standard — the 5-year average PE — shows 14% above what the market itself paid on average over five years. The Graham formula shows 60%. These are not screaming overvaluation signals for a business of this quality, but they are fails. The subscriber decides whether their investment standard is “at or below the market’s own average” or “at or below Graham’s formula.” Both are legitimate. Neither produces a buy signal today.
Chart 3 answers the third question about timing. The PE is currently in a contraction phase following the Feb 2025 Sentiment Overshoot peak of 62 times. The rolling average at 45 times is the gravitational centre. Whether this contraction ends at 45 times — as the prior two did — or overshoots further is unknowable. What is knowable is that the W9 Coiled Spring was recorded in December 2025 at 46 times, which is close to that average. The spring has been loaded before.
Chart 4 answers the fourth question about the GPS signal. Nine recorded waypoints show a consistent pattern: the GPS has identified every significant turning point in this stock’s valuation cycle. The current signal is Growth Despite Richness — the corner has not yet been turned. The next EPS release will determine whether the W9 Coiled Spring becomes a confirmed new cycle or whether the contraction has further to run.
Four charts. Four questions. The analysis is complete. The conclusion is yours.
The Decision
Costco earns $18.91 per share on one of the most durable retail franchises in the world, trades at 49 times forward earnings, and has spent forty years building the only membership model that has consistently renewed above 90% through recessions, pandemics, and competitive onslaughts. The GPS signal is Growth Despite Richness — the business fully justifies a premium, but the size of that premium is at the top of its historical range. Six dimensions, one honest reading: the quality is exceptional, the growth is steady, the valuation is stretched, the management is proven, the chart is consolidating at highs. GARPify does the work. You do the thinking.
Costco at $997 is a business worth owning and a price that asks for patience. The GPS signal — Growth Despite Richness — reflects a company where the underlying engine is sound and the trajectory is intact, but where the valuation has moved ahead of the near-term earnings growth rate. The decision framework for a long-term holder is straightforward: if you own it, the case for continuing to hold it is stronger than the case for selling into a business delivering fourteen-percent earnings growth with a ten-year ROIC expansion story still running. The case for adding at current prices requires conviction that the bull case — digital re-rating, international acceleration — materialises within twenty-four months. Those who are not yet in the stock are likely better served waiting for the $900–$930 support zone before initiating a position at a more constructive entry.
The GPS is reading a business growing above its sector average, with strong ROIC and membership economics, against a valuation that already prices in a great deal of that quality. Growth is present and verifiable. The richness is the friction. Position sizing and entry point matter more here than in a lower-valued equivalent.
* GPS inputs are estimated pending confirmation from the user. Waypoints, stages, and signal assignments should be verified before using this report for any investment decision.
The Four Questions
| Pass | Valuation model | Fair value | PE | Premium |
|---|---|---|---|---|
| ✗ | 5-Year Average PE EPS × 45.6× — the market’s own 5-yr average. Most forgiving model. |
$877 | 45.6× | +14% |
| ✗ | Graham Formula EPS × (8.5 + 2G) — intrinsic value for a growing compounder. |
$625 | 32.5× | +60% |
| Phase | Period | PE range | Character |
|---|---|---|---|
| Gradual expansion | 2010–2018 | 21× → 32× | Eight-year drift upward as market reprices the membership model. Slow and steady. |
| Aggressive expansion | 2018–Dec 2021 | 30× → 49× | Pandemic re-rating. Peaks at W3 Sentiment Overshoot (Dec 2021). |
| Contraction | 2022 | 49× → 34× | Post-pandemic multiple reset. W4 Coiled Spring recorded at the trough (Dec 2022). |
| Aggressive expansion | Nov 2022–Feb 2025 | 34× → 62× | Fee increase + AI consumer re-rating. Peaks at W8 Sentiment Overshoot (Feb 2025). |
| Contraction | Mar 2025–now | 62× → 51× | Current phase. W9 Coiled Spring recorded Dec 2025. Rolling average at 45× is the gravitational centre. |
| # | GPS Signal | Date | Price | Fwd PE | EPS gr. | Stage |
|---|---|---|---|---|---|---|
1 | Coiled Spring | Oct 2015 | ~$148 | ~26× | +18% | 2 |
2 | GARP Sweet Spot | Oct 2018 | ~$210 | ~30× | +15% | 2 |
3 | Sentiment Overshoot | Dec 2021 | ~$570 | ~55× | +12% | 3 |
4 | Coiled Spring | Dec 2022 | ~$440 | ~30× | +17% | 1 |
5 | GARP Sweet Spot | Dec 2023 | ~$688 | 41.1× | +16% | 2 |
6 | Full Momentum | May 2024 | ~$826 | 47.2× | +14% | 2 |
7 | Growth Despite Richness | Dec 2024 | ~$974 | 42.2× | +15% | 3 |
8 | Sentiment Overshoot | Mar 2025 | ~$1,034 | ~62× | +9% | 3 |
9 | Coiled Spring | Dec 2025 | ~$844 | ~46× | +11% | 1 |
● | Growth Despite Richness current | Mar 2026 | $997 | 48.7× | +14% | 3 |
Where the GPS Stands Today
Three factors. One reading. Costco’s price is falling, its earnings multiple is compressing, and its earnings per share are growing faster than at any point in fifteen years. That combination is what the GPS calls Growth Despite Richness — and it raises the same question that has defined Costco’s investment case: is the market correctly identifying a structural problem the numbers have not yet revealed, or is it making the same mistake it made in 2023?
The chart below makes the divergence visible. Costco’s earnings per share compounded steadily for years while the stock barely moved. Then in 2023 the cloud transformation started showing up in the numbers, and the price ran hard to catch up — and then past them. By early 2026, the multiple was at 65 times trailing earnings. Then in March it collapsed, while earnings kept climbing. The gap that opened in March 2026 is what the full report examines.
The Foundation
Costco's moat is not a product, a patent, or a brand in the conventional sense. It is a promise. Charge customers to shop, then give them the best prices on earth, and never break that promise. The renewal rate — above 93% in every geography — is the proof that the promise has been kept. The membership float funds the operations. The volume purchasing power funds the prices. The discipline not to break the model is the competitive advantage that no competitor has ever successfully replicated.
Walk through any Costco warehouse and you are walking through a proof of concept. The parking lot is full on a Tuesday afternoon. The carts are enormous. The product selection — roughly four thousand stock-keeping units, compared to thirty thousand in a typical supermarket — forces a kind of radical curation that most retailers would consider commercial suicide. You don't browse Costco. You buy what's there, because what's there is always priced at a level that makes comparison shopping feel like an insult to your time.
The business model has three working parts. First, the membership fee: gold-standard ($65 annually) or executive ($130 annually), with the executive tier offering a two-percent reward on eligible purchases that effectively returns part of the fee for heavy users. At the end of the second quarter of fiscal 2026, membership fee revenue had grown eleven and a half percent year-over-year to $2.684 billion for the first twenty-four weeks — driven both by last year's fee increase and by continued net new member growth. This revenue line has a cost close to zero. Every dollar of membership fee flows almost directly to operating income.
Second, the merchandise engine. Costco sells from a tightly curated selection at margins it publicly caps at fifteen percent. The result is a gross margin of roughly twelve point nine percent — an astonishingly thin number for a retailer that also operates pharmacies, optical centres, food courts, and petrol stations. The thinness is the feature, not a bug. It is what keeps members renewing, what keeps traffic compounding, and what makes it nearly impossible for a conventional retailer to compete on the merchandise itself.
Third, the float. Because Costco turns inventory quickly — often selling product before the supplier invoice is due — the company routinely operates with negative working capital. Suppliers effectively finance a portion of the business. At the end of the second quarter, accounts payable of $20.6 billion exceeded merchandise inventories of $19.0 billion. That is a float of more than one and a half billion dollars, effectively free short-term financing provided by the supply chain in exchange for the volume Costco delivers.
The Kirkland Signature private label deserves its own paragraph. What began as a generic house brand is now arguably the most trusted private label in American retail — a brand that members actively seek out rather than settle for. Kirkland's penetration into categories from olive oil to cashmere sweaters to tequila creates a margin buffer within the low-margin model that isn't visible on the headline gross margin line but is felt in the earnings trajectory.
Costco's competitive moat is not geography, not technology, and not scale alone. It is the psychological contract between the company and its members: a promise that if you pay the fee, you will always get a better deal here than anywhere else. That promise has never been broken. Ninety-three percent of North American members renewed in the most recent quarter. As long as that number holds, the foundation holds.
Playing a Different Game
Costco is running three growth waves simultaneously. The core North American warehouse model, forty-plus years mature, remains a steady compounder with room to add thirty or more locations annually. International expansion — only a third of the way through its addressable opportunity — is the accelerating wave, with Asia in particular showing unit economics that match or exceed the North American base. The third wave, digital and same-day delivery, is the wave that the valuation does not yet fully reflect.
The first wave — North American warehouses — is in the late stages of its S-curve. There are 634 locations in the United States and Puerto Rico, with only the most underserved markets, secondary cities, and select international border regions remaining as genuine greenfield opportunity. Growth in this wave comes through higher sales per warehouse, not dramatically more warehouses. Average warehouse volumes at Costco have been rising steadily for years, driven by larger basket sizes, more frequent visits, and higher penetration of non-food categories.
The second wave is international. Costco currently operates 176 warehouses outside North America — in Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand — with Mexico's forty-two locations sitting in a structural midpoint between the mature US model and the still-developing markets. International comparable sales grew at thirteen percent in the second quarter, adjusted for currency, compared to six percent for the United States. The international segment generated $908 million in operating income in the first half of fiscal 2026, up twenty-four percent year-over-year. The opportunity here is not incremental. Costco opened its first warehouse in China only in 2019. It has five in Spain. It has three in France. These are countries with large, aspirational middle classes and deeply embedded cultures of paying for quality. The playbook is established. The execution is in the early chapters.
The third wave — digitally-enabled commerce — is the one that most traditional Costco analysis underweights. In the second quarter, digitally-enabled sales grew twenty-two percent. This is not conventional e-commerce cannibalising warehouse traffic; Costco's internal data consistently shows that members who engage digitally visit warehouses more frequently, not less. The digital channel is expanding the wallet share of existing members and opening the door to categories — large appliances, tyres by mail, travel — that were previously limited by warehouse floor space. The company changed its metric this year to "digitally-enabled comparable sales," an acknowledgement that the relevant unit is not "orders placed online" but "value created through digital touchpoints."
Most large-cap retailers are one-wave businesses trying to manage a maturing curve. Costco is running three waves simultaneously, with the second and third waves still in their steepest sections. The bears price Costco on the first wave. The bull case is that the second and third waves combined are larger than the first.
The Scoreboard
Earnings grew fourteen percent in the most recent quarter on nine percent revenue growth — which means the operating leverage is real and measurable. Return on invested capital sits at 22.8%, a number most retailers would consider a fantasy. Free cash flow reached $8.4 billion over the trailing twelve months. The one number that earns honest attention is the PEG ratio: at 4.23 against 14% earnings growth, the market is paying a structural premium that has been the defining characteristic of Costco's valuation for two decades.
The Next Play
At $997 per share, Costco trades at 49 times forward earnings — a premium that has become structural rather than episodic. Against peers, the valuation gap is significant: Walmart trades at 43 times forward earnings, Home Depot at 28 times, Target at 18 times. The bear case is simple and requires no creativity: 49 times earnings for 14% earnings growth is not GARP by any conventional definition. The bull case requires a longer time horizon and a different framework: Costco's earnings growth has been more consistent, more durable, and more predictable than almost any other retailer in history.
| Company | Fwd PE | TTM PE | PEG | 5yr EPS CAGR | ROIC | FCF Margin |
|---|---|---|---|---|---|---|
| COST — Costco | 48.7× | 51.8× | 4.23 | +15.1% | 22.8% | 3.2% |
| WMT — Walmart | 42.9× | 45.9× | 6.14 | +6.8% | 13.6% | 2.1% |
| HD — Home Depot | 22.7× | 24.0× | 3.90 | +7.8% | 19.3% | 7.7% |
| ATD.TO — Couche-Tard | 20.5× | 21.6× | 2.88 | +6.2% | 8.8% | 4.0% |
| AMZN — Amazon | 27.9× | 30.0× | 3.66 | +27.9% | 15.7% | 1.1% |
| Pass | Valuation model | Fair value | PE | Premium |
|---|---|---|---|---|
| ✗ | 5-Year Average PE EPS × 45.6× — the market’s own 5-yr average. Most forgiving model. |
$877 | 45.6× | +14% |
| ✗ | Graham Formula EPS × (8.5 + 2G) — intrinsic value for a growing compounder at 12% CAGR. |
$625 | 32.5× | +60% |
| Phase | Period | PE range | Character |
|---|---|---|---|
| Gradual expansion | 2010–2018 | 21× → 32× | Eight-year drift upward as market reprices the membership model. |
| Aggressive expansion | 2018–Dec 2021 | 30× → 49× | Pandemic re-rating. Peaks at W3 Sentiment Overshoot (Dec 2021). |
| Contraction | 2022 | 49× → 34× | W4 Coiled Spring at the trough (Dec 2022). |
| Aggressive expansion | Nov 2022–Feb 2025 | 34× → 62× | Fee increase + AI re-rating. Peaks at W8 Sentiment Overshoot (Feb 2025). |
| Contraction | Mar 2025–now | 62× → 51× | W9 Coiled Spring Dec 2025. Rolling average at 45× is gravitational centre. |
The Risk
Three inversions. Inversion one — membership renewal rates slip below 90% for the first time in the company's modern history. If that number moves, the entire valuation framework needs to be rebuilt. Inversion two — the tariff environment structurally widens the price gap between Costco and its suppliers in ways that cannot be passed on to members. Costco's promise is a low price. If the cost structure changes and the promise cannot be kept, the renewal rate follows. Inversion three — digital growth cannibalises the warehouse visit rather than extending it. The warehouse visit is not just a transaction — it is an experience that drives the renewal. If digital replaces that experience rather than supplementing it, the unit economics change.
The membership model rests on a single number: 93% renewal rate in North America. Everything downstream from that — the pricing authority, the float, the supplier relationships, the real estate strategy — is a function of that renewal rate holding. If it began to decline, the feedback loop would reverse. Lower renewals mean less revenue to invest in pricing. Less investment in pricing means worse deals. Worse deals mean more attrition. Base rate: Costco's renewal rate has never dropped below 88% in twenty years of available data. The risk is not that membership decays suddenly — it is that it creeps lower over a decade as younger households, more accustomed to subscription fatigue, treat the membership as one of several they cycle through rather than the one they keep for life. The digital competition from Amazon Prime and Walmart+ is the most plausible vector for this slow erosion.
Costco's management explicitly cited tariffs as a risk factor in the second-quarter 10-Q. Government actions in various countries relating to tariffs affect merchandise costs, and the company's exposure depends on the type of goods, rates imposed, and timing. Costco has historically responded to cost increases by working with suppliers to absorb them, shifting sourcing, or buying in advance. But a persistent, broad-based increase in the cost of goods — particularly in the non-foods and fresh categories that are most exposed to import costs — puts the fifteen-percent margin cap under structural pressure. Base rate: Costco navigated the 2018–2019 tariff cycle and the 2021–2022 inflation wave without meaningful damage to its gross margin structure. The specific risk in 2026 is the breadth and duration of any new tariff regime, and whether Costco can continue to credibly promise "best prices" in a world where its competitors face the same input cost environment.
Costco's digitally-enabled sales are growing at twenty-two percent, but management has explicitly disclosed that e-commerce has a lower gross-margin percentage than warehouse operations. As digital penetration rises, the blended gross margin has a structural headwind embedded within it. Today, digital is still a small enough fraction of total revenue that this drag is minimal. If, over the next five years, digital grows to represent fifteen or twenty percent of total revenue — plausible given current trajectory — the gross margin dilution becomes material. Base rate: every major omnichannel retailer has faced this transition. The companies that navigate it best — Target, for example — tend to be those that can use digital volume to lever fulfilment density and reduce per-unit costs. Costco's advantage is that its digital orders are disproportionately large-basket, high-value items that carry better unit economics than typical e-commerce. But the risk is real and worth monitoring in gross margin trend data each quarter.
None of the three inversions is likely in isolation or on a short timeline. The renewal rate is structurally sticky, the tariff exposure is real but manageable for a company with Costco's procurement leverage, and digital margin dilution is gradual. The relevant question for investors is whether the current valuation compensates adequately for these risks — and at a fifty-two times earnings multiple, the margin for error is thin.
The Management
Ron Vachris, who became CEO in January 2024 after thirty-four years at the company, represents the fourth iteration of Costco's executive succession — a lineage that runs from the founders through Jim Sinegal's thirty-year tenure, then Craig Jelinek, and now Vachris. Each transition has been internal. Each successor has come from operations. The management philosophy — frugality, member obsession, employee wages above market — has been preserved through four decades and four CEO transitions. That consistency is not an accident. It is a selection mechanism built into the culture.
The four management decisions that define Costco's identity and compound its long-term value are: the decision to pay employees well above retail industry averages; the decision to limit gross margin to fifteen percent regardless of what the market would bear; the decision to invest in member loyalty rather than marketing; and the decision to grow warehouses slowly, only in markets where the unit economics are clearly demonstrable. Each of these decisions is countercultural in its industry. Each has been maintained for forty-plus years.
The employee economics deserve specific attention. Costco pays starting wages meaningfully above the retail sector average. Its healthcare and retirement benefits are among the most comprehensive in consumer retail. The company's turnover rate for hourly employees is consistently reported to be below ten percent, compared to industry averages above fifty percent. The cost of this policy is real — it appears in the SG&A line. The benefit is invisible in the financials but visible in warehouse execution: well-trained, long-tenured employees who know the products, know the members, and execute at a level that shorter-tenured workforces cannot match.
Ron Vachris's first eighteen months have produced no strategic pivot, no restructuring, and no acquisitions. That is exactly what the model requires. The capital allocation has continued unchanged: a moderate dividend growing in line with earnings, a $4 billion share repurchase authorisation used at a deliberate pace (not a "we need to do something with this cash" pace), and capital expenditure committed to new warehouse openings and the technology infrastructure that supports the digitally-enabled channel. The Piotroski F-Score of 8 out of 9 for the most recent period confirms that the financial statements are telling a story of improving quality across solvency, liquidity, and operating efficiency simultaneously.
The most durable management advantage Costco possesses is not the current CEO — it is the process that produced the current CEO, and will produce the next one. Internally promoted management teams at businesses with embedded cultures and clear values tend to outperform those who recruit for "transformation." Costco doesn't need transformation. It needs execution. The current team is well-suited to deliver it.
The Chart
COST is in a Stage 3 trend on the Weinstein framework — a stage characterised by extended advance from a prior base, high public recognition, and a price that has moved meaningfully above its long-term moving average. The stock made all-time highs above $1,034 in the fourth quarter of 2024 and has since consolidated in a range between $900 and $1,000. The 30-week moving average is flattening but has not rolled over. This is the chart of a great business at a high price — not a breakdown, not a distress signal, but equally not the chart of a stock that is about to make another fifty percent move.
The most important structural observation about COST's long-term chart is that each major correction since 2017 has held above the prior base of the advance. The 2018 correction held at $175. The 2020 pandemic low held at $270. The 2022 bear market low held at $406. The 2025 pullback held at approximately $855. In each case, the stock bottomed well above the prior cycle's starting price. This is the defining characteristic of a Stage 2 name that has graduated into Stage 3 without completing a full Stage 4 decline — the corrections deepen but do not negate the primary uptrend.
The current technical setup shows consolidation near all-time highs. After the October 2024 high near $1,034, COST declined approximately seventeen percent to the $855 area before recovering. That recovery has now retraced the bulk of the decline, and the stock sits approximately three and a half percent below the all-time high. From a Weinstein perspective, the key question is whether the current consolidation represents accumulation ahead of a breakout to new highs — consistent with a Stage 2/3 continuation — or distribution ahead of a more significant correction.
The volume pattern in the recovery from $855 to $997 is constructive: the advance has been accompanied by above-average volume on up-days, which suggests institutional accumulation rather than short-covering. However, the distance from the fifty-two-week moving average ($932) is modest — the stock is not extended in the way it was in October 2024 when it briefly traded at an eighteen percent premium to the yearly average.
COST's chart structure does not signal a top. It signals a stock in the later innings of a major uptrend, consolidating below all-time highs after a meaningful correction. A decisive close above $1,034 on expanding volume would be a technical confirmation of Stage 2 resumption. A break below $900 on expanding volume would be a warning that Stage 3 is transitioning to Stage 4 — and at that point, the fundamental story would need re-examination through the lens of what changed.
Chart 2 answers the second question honestly. Every price-based model shows a premium. The most forgiving standard — the 5-year average PE — shows 14% above what the market itself paid on average over five years. The Graham formula shows 60%. These are not screaming overvaluation signals for a business of this quality, but they are fails. The subscriber decides whether their investment standard is “at or below the market’s own average” or “at or below Graham’s formula.” Both are legitimate. Neither produces a buy signal today.
Chart 3 answers the third question about timing. The PE is currently in a contraction phase following the Feb 2025 Sentiment Overshoot peak of 62 times. The rolling average at 45 times is the gravitational centre. Whether this contraction ends at 45 times — as the prior two did — or overshoots further is unknowable. What is knowable is that the W9 Coiled Spring was recorded in December 2025 at 46 times, which is close to that average. The spring has been loaded before.
Chart 4 answers the fourth question about the GPS signal. Nine recorded waypoints show a consistent pattern: the GPS has identified every significant turning point in this stock’s valuation cycle. The current signal is Growth Despite Richness — the corner has not yet been turned. The next EPS release will determine whether the W9 Coiled Spring becomes a confirmed new cycle or whether the contraction has further to run.
Four charts. Four questions. The analysis is complete. The conclusion is yours.