Should Investors Be Concerned that Costco Stock Trades at Over 40 Times Forward Earnings?
Key Points
Costco’s valuation is steep, trading at 42-44x forward earnings, but its membership model, strong growth, and customer loyalty continue to justify the premium.
Strong sales, rising membership income, warehouse expansion, and cash generation could drive further earnings growth.
Costco (NASDAQ: COST) has a forward price-to-earnings (P/E) multiple in the low- to mid-40s, and investors who might want to buy the stock have a fair question on their minds. Should they feel comfortable owning a warehouse club at one of the richest valuations in the consumer staples sector, or should they trim exposure before the math bites?
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As of mid-August 2026, Costco's trailing price-to-earnings ratio is near 48, and its forward multiple is around 42-44, with a five-year price-to-earnings to growth (PEG) ratio above 4. That sits well above the S&P 500 consumer staples group, where the forward P/E is close to 26, and profit growth expectations hover in the low single digits.
Reuters has already flagged Costco and Walmart as the two names driving much of the sector's valuation stretch, with both trading north of 40 times forward earnings. At these levels, Costco will need years of solid earnings expansion and store growth just to hold its ground. I think it will happen.
Costco's booming business and membership model
Costco's business has delivered. In fiscal 2026, Costco reported second-quarter net sales of $68.24 billion, up 9.1% from a year earlier, and net income of about $2.04 billion, or $4.58 per diluted share, up from $4.02. Third-quarter net sales rose 11.6% to $69.15 billion dollars, with diluted earnings per share of $4.93 versus $4.28 dollars last year. Membership fee income grew at a double-digit rate and remains one of the highest-quality pieces of the model, since those dollars arrive at minimal cost and signal loyalty to the brand. Return on equity near 29% and strong cash generation give Costco room to keep investing in new warehouses and digital capabilities while supporting dividends and buybacks.
Costco's shares hit their all-time high price of $1,094.32 in May. I think by next year, shares will be over $1,200 a pop. I'm not worried about where the stock is trading relative to forward earnings, because Costco's business model has proven remarkably durable.
Customers keep renewing their memberships, and the company continues to expand its warehouse base, giving it multiple avenues for continued growth. The valuation is high, but when a company consistently delivers strong growth and has customer loyalty, I'm more willing to pay a premium. If you want a durable consumer exposure with strong execution, Costco stock could still make sense at this premium, especially as a core holding sized with care.
Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.