Is Costco Stock Too Expensive -- or Worth Every Penny?

When investors talk about companies that stand the test of time, Costco Wholesale Corp (NASDAQ: COST) often makes the short list. The warehouse club has built an enviable reputation, boasting loyal members, steady sales growth, and a culture of value that resonates with shoppers in both good times and bad.

However, despite its strengths, Costco stock presents a familiar challenge -- it rarely appears to be undervalued. Shares trade at a significant premium compared to other retailers, and the valuation question inevitably surfaces: Is Costco overvalued, or is its premium price tag part of the investment case?

Let's break down why the market rewards Costco with a higher multiple, where growth could come from next, and whether paying up today still makes sense for long-term investors.

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Why does Costco's stock command a premium?

Unlike many retailers that rely on razor-thin margins and constant promotions, Costco's business model relies on membership fees. In the fourth quarter of fiscal 2025 (ended Aug. 31, 2025), membership revenue reached $1.7 billion, accounting for 65% of pure profit on the bottom line. Renewal rates came in at 92% that period in the U.S. and Canada, a testament to just how sticky the model is.

This high renewal rate creates a flywheel effect. Members pay to join, which incentivizes them to shop more often to "earn back" the fee. That, in turn, drives volume, which helps Costco negotiate better prices with suppliers, thereby reinforcing the value proposition for its members. Few competitors can consistently replicate this cycle.

Operationally, Costco has also shown resilience. Comparable sales growth remains strong even in inflationary periods, and traffic trends have been robust despite pressure on consumer wallets. For perspective, comparable sales rose 5.7% in the latest quarter, driven by both higher ticket prices and increased traffic.

Put simply, investors are paying a premium for consistency, predictability, and durability.

There is still room for growth

For a company that already generates over $275 billion in annual revenue, Costco still has white space to expand.

International growth is the clearest lever. The U.S. remains the backbone of operations, but markets such as China, Japan, and Europe are becoming increasingly significant. Costco currently has just 914 warehouses worldwide, a fraction compared to the potential in densely populated, high-income regions.

Digital and e-commerce channels, while smaller than peers, are steadily improving. Services like same-day grocery delivery and online bulk ordering are expanding Costco's reach beyond its physical walls. It's not trying to compete head on with Amazon, but rather to extend member value in a digital-first world.

Finally, Costco's ancillary businesses -- from gas stations to travel services to optical centers -- enhance member stickiness. Each of these services may look modest individually, but collectively they create a powerful ecosystem that gives customers multiple reasons to increase spending over time.

The valuation debate

Here's the sticking point: Costco trades at a price-to-earnings (P/E) of 52, which is above its peer, Walmart -- the latter trades at a P/E ratioof 39. While neither company trades at a cheap multiple (at least optically), Costco's stock is clearly at a higher price tag.

Skeptics argue that even the best retailers face limits. Economic cycles can pinch discretionary spending, and future expansion requires solid execution. Paying a steep multiple leaves little margin for error.

But the counterpoint is just as compelling. Costco has always looked expensive, yet long-term investors have consistently done well. The stock has more than doubled in value over the last five years, despite trading at what appeared to be a premium for most of that time.

In some cases, paying up for a business with strong competitive advantages and durable growth drivers is rational -- especially when the alternative is waiting for a pullback that may never come.

What does it mean for investors?

Costco isn't the kind of stock you buy because it looks cheap on today's numbers. It's the kind of stock you buy because you believe in its long-term ability to compound value, fueled by loyal members, international expansion, and an increasingly diversified ecosystem of services.

For those with a long-term horizon, Costco's premium price may be less of a warning sign -- and more of a reflection of the quality on offer. In other words, investors have little choice but to pay up to own Costco stock.

However, for those who are uncomfortable with paying, it's not the end of the world. After all, investors can always look for other stocks that fit into their comfort zone.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.