Is Costco (COST) Stock a Buy, Hold, or Sell in 2026?

Costco Wholesale Corporation (COST) has long been a cornerstone of the membership-based retail sector, celebrated for its disciplined cost structure, loyal customer base, and strategic expansion. However, as of early 2026, the stock faces a valuation conundrum: a price-to-earnings (P/E) ratio of 50x, significantly above the U.S. Consumer Retailing industry average of 20.2x, raises questions about whether the market is overpaying for its growth prospects. This analysis evaluates Costco's financial performance, strategic initiatives, and long-term potential to determine whether the stock warrants a "buy," "hold," or "sell" recommendation in 2026.

Financial Performance: Strong Fundamentals Amid High Multiples

Costco's Q3 2025 results underscored its resilience. Net income rose 13% year-over-year to $1.90 billion, with diluted EPS reaching $4.28-exceeding analyst expectations. Quarterly net sales surged 8.0% to $61.96 billion, driven by robust growth in the U.S., international markets, and e-commerce, which saw a 14.8% increase in online revenue. Membership fee income, a critical revenue stream, grew 10.4% to $1.24 billion, supported by a global renewal rate of 93%.

The company's Q1 2026 performance further reinforced these trends. Net sales hit $66.0 billion, an 8.2% year-over-year increase, while membership fees jumped 14.0%. Digital sales, a strategic focus area, surged 20.5% in Q1 2026, reflecting improved e-commerce tools and personalization features. These results highlight Costco's ability to adapt to shifting consumer preferences while maintaining its core value proposition of low prices and high-value memberships.

Valuation Analysis: High Multiples vs. Strong Growth Projections

Despite these positives, Costco's valuation remains a point of contention. As of early 2026, the stock trades at a P/E ratio of 50x, nearly double the peer average of 22.5x. This premium reflects investor confidence in Costco's long-term growth but also raises concerns about overvaluation. However, analysts argue that the stock may still be undervalued. A recent valuation study projected a fair value of $1,055.97 for Costco, citing its strong operational performance and long-term growth trajectory.

Historical data supports this optimism. Membership revenue is projected to grow by 56% by 2034 compared to 2024, with membership fees expected to account for half of total operating income. This trajectory suggests that Costco's membership model, which generates recurring revenue and high customer retention, could justify elevated multiples over time.

Strategic Initiatives: Expansion and Digital Innovation

Costco's long-term strategy hinges on two pillars: physical expansion and digital transformation. The company plans to open 28 new warehouses in fiscal 2026, including locations in France and Canada, and aims to return to its historical pace of opening 30-plus stores annually. International markets, which contributed double-digit comparable sales growth in Q3 2025, remain a key focus, despite challenges such as slower expansion in China.

Digitally, Costco is investing heavily in enhancing the e-commerce experience. CEO Ron Vachris emphasized the goal of delivering a "seamless digital experience" to build trust and loyalty. These efforts are paying off: digital sales grew 20.5% in Q1 2026, and the company's fresh-food segment-particularly Kirkland Signature private-label products-has become a significant growth driver.

Challenges and Risks

While Costco's fundamentals are strong, risks persist. Inflationary pressures could erode profit margins, particularly in the fresh-food segment, which relies on volatile commodity prices. Additionally, international expansion faces regulatory and logistical hurdles, as seen in delayed projects in Spain. However, Costco's membership-based model provides a buffer against these risks, as recurring fees offer stable cash flows even during economic downturns.

Conclusion: A "Hold" with Long-Term Buy Potential

Costco's current valuation challenges-reflected in its high P/E ratio-contrast with its strong financial performance and strategic momentum. While the stock may appear overvalued in the short term, its long-term growth prospects, including membership revenue expansion, digital innovation, and global store openings, suggest that the market is not fully pricing in its potential.

For investors with a long-term horizon, Costco remains a compelling opportunity. However, those wary of elevated multiples may prefer to adopt a "hold" stance until the stock retraces to more attractive levels. In the near term, the company's ability to execute its expansion plans and maintain membership growth will be critical to justifying its premium valuation.