Costco Wholesale Corporation COST

Costco trades around 49× trailing earnings because the market is paying for its membership annuity, not its retail markup. Fee income reached $1.37 billion in the quarter ended May 2026, up 10.7% year over year, and 92.2% of US and Canadian members renewed — recurring, high-certainty cash that behaves more like a subscription than a grocer's profit. The roughly 3% net margin on $294 billion of trailing sales understates the model: the durable earnings the multiple discounts come from renewals and volume, which is why a thin-margin retailer carries a software-like multiple.

Membership fee income was $1.37 billion in fiscal Q3 2026, up 10.7% from a year earlier — and because it is almost pure profit, it carries a large share of the company's ~$2.2 billion of quarterly net income. The fee renews: 92.2% of US and Canadian members and 89.7% worldwide paid again, across 82.9 million paid households. The September 2024 price increase ($60 to $65 for Gold Star, $120 to $130 for Executive) is still flowing through, contributing a bit more than a quarter of the fee-income growth.

In fiscal Q3 2026 (12 weeks ended May 10, 2026), Costco reported $70.5 billion of total revenue, up 11.6% year over year, and diluted EPS of $4.93, up about 15%. Net income was roughly $2.2 billion. Reported comparable sales rose 9.8%, but stripping out gasoline and currency, underlying comps were closer to 6.6%, and e-commerce grew about 21%. Operating margin stayed under 4% as the company reinvested gross margin into lower prices.

By its own history, Costco's ~49× trailing multiple is rich: that's above its ten-year average near 39×, roughly triple Target's ~15× and well above Walmart's ~40×. Analyst consensus frames only modest room — a 12-month target around $1,083, about 10–15% above the ~$982 price, with fresh cautious calls landing near the current level. The premium reflects near-100% renewal and steady ~10% earnings growth; what it leaves thin is the margin of safety if that multiple ever reverts toward its norm.

Costco's renewal rate was 92.2% in the US and Canada and 89.7% worldwide as of fiscal Q3 2026, near the highest levels the company has reported. That stickiness is the heart of the investment case: it turns the annual fee into a recurring annuity rather than a one-time sale. Paid membership grew about 4% to 82.9 million households, and higher-tier Executive members — who pay roughly double and drive most of the sales — grew almost 10% to 41.2 million.

The single biggest risk is the valuation itself: at ~49× earnings and ~30× EV/EBITDA, the stock is priced for years of flawless execution, so a de-rating toward its historical norm could weigh on returns even if the business holds. Near term, new import tariffs pressure sourcing — Costco has filed refund claims and intends to pass relief back to members rather than bank it as margin. Slower underlying comps (~6.6% ex-gas/FX) and competition from Walmart, Sam's Club, BJ's and Amazon round out the list.