Costco COST
What does Costco do?
Costco operates warehouses in which only members can shop. The product range is deliberately limited and extends from food and fresh produce through household goods, electronics and tires to clothing and furniture. There are also additional offerings such as gas stations, optical, pharmacy, travel and online retail. The company is active in North America, Europe and Asia-Pacific.
The business model rests on two sources of earnings: a very low markup on goods and recurring membership fees, which account for a substantial part of profit. The private label Kirkland Signature strengthens customer loyalty and margin. In competition with supermarkets, discounters, online retailers and other clubs such as Sam's Club or BJ's, Costco relies on purchasing scale advantages, low costs and a price promise that generates high customer loyalty.
Score profile
Rank vs. Discount Stores (8 companies). 10 = top of the group, 5 = middle. Calculated from the metrics below, without AI.
Metrics compared with the industry
On profitability and quality, Costco ranks below average in the group Discount Stores (3.8/10). On growth, the company ranks in the middle in the group Discount Stores (4.4/10). On valuation (higher = cheaper), the stock ranks in the bottom fifth in the group Discount Stores (1.0/10). On financial strength, Costco ranks in the middle in the group Discount Stores (4.8/10).
| Metric | Stock | Group median | Ranking |
|---|---|---|---|
| Forward P/E | 42.6x | 20.6x | better than 6 % |
| Trailing P/E | 51.4x | 22.7x | better than 6 % |
| PEG ratio | 5.3x | 2.2x | better than 7 % |
| EV/EBITDA | 32.5x | 14.1x | better than 6 % |
| Price/sales | 1.6x | 1.1x | better than 19 % |
| Price/book | 13.2x | 5.2x | better than 6 % |
| Revenue growth | 11.1% | 8.1% | better than 69 % |
| Earnings growth | 15.0% | 26.3% | better than 19 % |
| Gross margin | 12.8% | 26.6% | better than 6 % |
| Operating margin | 3.8% | 5.0% | better than 19 % |
| Net margin | 3.0% | 3.5% | better than 44 % |
| Return on equity | 28.4% | 24.4% | better than 81 % |
| Debt/equity | 28.4% | 89.6% | better than 81 % |
| Current ratio | 1.1x | 1.1x | better than 44 % |
| Free cash flow yield | 1.4% | 2.0% | better than 19 % |
| Dividend yield | 0.6% | 0.8% | – |
| Payout ratio | 26.7% | 30.7% | – |
| Beta | 0.85 | 0.61 | – |
Valuation: what is Costco worth?
Two valuation approaches – a discounted cash flow model and a valuation at the industry’s median multiples – give Costco a model range of 475.84 USD to 606.19 USD per share.
37 analysts, average rating “Buy”, average price target 1,071.32 USD (+0.5%).
The full DCF matrix, the reverse DCF (what growth the price implies) and scenarios are part of the Pro analysis.
What the business depends on
- Membership fees provide predictable, recurring income and depend on the number of members, the renewal rate and the fee level.
- High visitor frequency and large basket sizes per warehouse secure purchasing volume, economies of scale and a strong negotiating position with suppliers.
- Expansion with new warehouses and the build-out of international markets broaden the revenue base and membership base.
Risks
- Low markups leave little room for maneuver when goods, labor or freight costs rise or when prices come under pressure.
- Declining customer loyalty or member losses would hit profit disproportionately, as fees make up a large share of earnings.
- Tariffs, supply chain disruptions and weak consumer spending can weigh on product range, purchasing costs and demand for discretionary items.
What to look for with Costco
The membership renewal rate is particularly informative because it reflects customer satisfaction and the stability of recurring membership fees as the central source of profit.