Costco Is Priced Like The Best Of Its Group. Is It?
Costco’s stock is priced like the top item on the shelf, but its performance numbers are a split decision: strong on growth, weak on margin
Costco Wholesale (COST) stock trades near $949.58 a share, yet it has underperformed the S&P 500 over the last year, returning -3.4% against the index’s +23% gain. This puts the warehouse giant in a peculiar spot: the market gives it the highest valuation in its competitive class even though its growth ranks near the top of its peers and its profitability ranks near the bottom. Is the market paying a premium for a business quality the numbers don’t fully capture, or is it simply overpaying out of habit?
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The Price Tag Demands More Than The Store Delivers
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By the numbers, Costco’s premium is stark. The stock trades at 47.7 times earnings, the richest valuation among its direct peers. For comparison, Amazon.com, a growth powerhouse, trades at just 21.3 times earnings despite delivering far faster revenue growth of 15.8% over the last twelve months, compared to Costco’s 9.2%.
The mismatch is just as clear on profitability. Costco’s operating margin is 3.8%. That’s a slim figure next to Home Depot’s 12.4% or even Walmart’s 4.2%. While Costco’s growth is respectable, it doesn’t lead the group, and its margins sit near the bottom. The valuation, however, sits at the very top, a disconnect that begs for a business explanation.
| COST | WMT | AMZN | TGT | HD | KR | |
|---|---|---|---|---|---|---|
| Market Cap ($ Bil) | 421.5 | 924.5 | 2,878.3 | 69.9 | 341.4 | 35.4 |
| PE Ratio | 47.7 | 40.7 | 21.3 | 20.3 | 24.4 | 34.8 |
| LTM Revenue Growth | 9.2% | 5.9% | 15.8% | 0.5% | 2.2% | 0.4% |
| LTM Operating Margin | 3.8% | 4.2% | 12.1% | 4.5% | 12.4% | 1.3% |
| 12M Stock Return | -3.4% | 12.6% | 21% | 56% | -9.0% | -23% |
What Is The Market Paying For?
The premium isn’t for raw growth or profit margins, but for the perceived invincibility of Costco’s membership model. That fee-based structure creates a powerful recurring revenue stream and a fiercely loyal customer base. Management recently reported a U.S. and Canada renewal rate of 92% and noted that its base of high-spending paid executive memberships grew 9.6% from last year.
This loyalty is the company’s fortress. Management sees it as a license to invest aggressively in price to widen its competitive moat, even if it temporarily pinches margins. On its latest earnings call, the company noted it “invested in lower prices for our members on several everyday items such as eggs and beef.” This strategy was on full display in its gas business, where price sensitivity drove “record-breaking volumes.” The market is betting that this loyal, growing member base provides a stability that peers lack, justifying a higher price for the stock.
The Real Test Is Whether New Members Keep Signing Up
The entire bull case rests on the perpetual motion of that membership machine. But the engine is showing signs of slowing. Total paid members grew 4.1% in the last year, a figure one analyst on the earnings call characterized as “the lowest level in some time.” While management frames this as a more normal rate of growth relative to major new market entries, it directly challenges the narrative of unstoppable expansion implied by the stock’s valuation.
If the premium is for the model’s durability, then the flow of new members is its lifeblood. A sustained slowdown would suggest the market has the pecking order wrong. The one number to watch, then, is the growth rate of total paid members. The company ended its last quarter with 82.9 million. For the premium valuation to hold, that growth rate needs to prove it has found a stable floor, not a slippery slope.
To keep score on this group beyond today, our full peer-by-peer dashboards for COST track the whole lineup, metric by metric.
And for anyone who would rather back the theme than one company’s story, a consumer staples ETF like XLP owns the staples names in the group: Costco, Walmart (WMT), and Kroger (KR). However, it won’t capture Amazon (AMZN) or Home Depot (HD), which sit in Consumer Discretionary. That way, no single company’s next surprise decides the outcome.
The Best Stock In The Group Is Still A Single Stock
Ranking a company against its peers sharpens the picture, and whichever name wins is still a single stock. A position that has grown large enough to matter is worth sizing deliberately rather than by accident. What a position that size would do to your net worth is exactly what the Trefis Wealth team computes, with the same rules-based systematic discipline that runs our High Quality Portfolio. Request a free vulnerability audit of your biggest positions.