What Are Costco Investors Betting On?

Costco Wholesale (COST) stock currently trades at 45.3 times its earnings of the past twelve months. At first glance, that valuation looks steep for a retailer that keeps about 3% of its sales as net profit. Investors, however, are buying the years ahead rather than a single past year of performance. So how much growth is a buyer at this price paying for?

Costco Buyers Are Paying For Single-Digit Growth

Wall Street consensus forecasts project that Costco’s sales will rise 7.5% between fiscal 2027 and fiscal 2028, with profit climbing 9.6%. Those estimates also assume the company will keep a slightly larger slice of each transaction. Analysts model a net margin of about 3.1% in both years, compared to the 3.0% Costco reported for fiscal 2026. It edges up slightly in fiscal 2028, which is why profit is forecast to grow faster than sales.

Based on those forecasted profits, today’s share price values the company at 41.3 times earnings for fiscal 2027 and 37.7 times for fiscal 2028. By comparison, the current price sits at 45.3 times the past year’s profit. In basic business terms, investors are betting on sales growth in the high single digits alongside a net margin slightly wider than the one Costco just reported.

Costco Has Shown The Sales But Not The Margin

Recent sales have actually outpaced these future assumptions. Its sales increased 10.1% in fiscal 2026, accelerating from an 8.2% gain the year before. The retailer is also continuing its physical expansion. During the company’s earnings call for the fiscal fourth quarter of 2026, executives noted that Costco opened 28 warehouses in fiscal 2026 and plans to open 33 in fiscal 2027. Both warehouse counts include relocations.

Profitability is where the current estimates face a tougher test. The 3.0% net margin Costco posted is its highest level of the past ten years, up from 2.9% a year earlier and 2.6% three years ago. Therefore, buyers at current prices are counting on less sales growth than the retailer just delivered, but demanding a net margin slightly above the ten-year high it just reached.

Costco Plans To Pass Most Tariff Refunds To Shoppers

That profit margin is exactly where Costco is most likely to fall short of the consensus forecast. The company reported earnings of $6.75 per share for the fiscal fourth quarter, a figure that included a $0.15 benefit from tariff refunds, net of the portion already reinvested in lower prices, which executives described as nonrecurring. Costco intends to pass most of the refunds it receives directly to members through lower prices, meaning refunds still to come should do little to widen the margin. Excluding those tariff refunds and their reinvestment, executives did note that core-on-core margins were higher by 18 basis points in the quarter. Even with that underlying improvement, a margin that remains flat at 3.0% would leave profit below the forecast.

Meanwhile, the top line has benefited from tailwinds that may prove temporary. Gas price inflation added about 3% to Costco’s sales in that quarter, according to the company. While comparable sales rose 9.4% as reported, that growth was 6.7% once gas prices and currency fluctuations were taken out. Any shift toward cheaper gas would remove that help and slow Costco’s overall sales growth.

If Costco delivers the sales and margin in the consensus forecast, the earnings multiples for the next two fiscal years present a fair reflection of today’s share price. Robust sales growth is certainly something the retailer has demonstrated, even without the recent boost from gas prices in its latest quarter. Yet if the net margin simply stalls at its fiscal 2026 level, current buyers will have paid upfront for profit Costco has not yet earned.

Does This Mean You Should Act On COST?

Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

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