Costco can still grow sales high-single digits, but paid-membership growth has normalized and the stock at 45 times last year’s earnings needs a faster profit step-up than I expect.
Key points
- 45 times last year’s $20.76 diluted EPS is what $942 requires if nothing else changes.
- 3.8% paid-membership growth in fiscal 2026, down from the fee-increase years, is the run-rate I use.
- $22.50 is my fiscal 2027 EPS, 8% above the $20.76 just reported, excluding one-time tariff refunds.
The call
The current price treats Costco as a 45-times-earnings compounder that will keep expanding membership income after the 2024 fee increase has fully lapped. That multiple needs operating income to rise faster than the 8.5% sales growth I model.
I instead expect high-single-digit sales, a flat 3.85% operating margin, and a 40-times multiple on $22.50 of earnings. September comps of 7.6% excluding gas and FX support the sales path; they do not support a higher multiple.
Revenue and operating income ($ billions)SEC company facts through FY2026; FY27E is the author's forecast.
Valuation
| Item | Figure |
|---|
| FY26 revenue | $303 billion |
| FY27E revenue (8.5% growth) | $329 billion |
| FY27E operating margin | 3.85% |
| FY27E net income | $10.0 billion |
| FY27E diluted EPS | $22.50 |
| Target multiple × EPS | 40 × $22.50 = $901 |
Forty times is a premium to a typical retailer and a discount to the 45 times last year’s earnings the stock trades at today. Downside if growth disappoints is larger than upside if the multiple holds, which is why the rating is hold, not sell.
Diluted EPS history and author's FY27EGAAP diluted EPS from SEC facts; FY27E excludes one-time tariff refunds.
Risks
- A special dividend or larger buyback could support the multiple even if earnings only match my estimate.
- Gasoline inflation or another fee increase could lift reported sales and membership income above the path I use.
- Warehouse openings falling well short of the 33 planned would cut the sales contribution I assume.
What would change my mind
A return to mid-single-digit paid-membership growth with operating margin above 4.0% for two consecutive quarters.