Costco's Stock: Is It Overvalued or Undervalued for Long-Term Investors?

The debate over Costco Wholesale Corporation's (COST) valuation has intensified in 2025, as the retail giant's stock trades at a price-to-earnings (P/E) ratio of 48.73x-nearly double the industry average of 20.78x and significantly above its historical norms according to industry analysis. For long-term investors, the question of whether Costco is overvalued or undervalued hinges on a nuanced analysis of its financial performance, growth prospects, and the broader retail industry dynamics.

Financial Fundamentals and Valuation Metrics

Costco's trailing twelve months (TTM) revenue for fiscal 2025 reached $275.235 billion, reflecting an 8.17% year-over-year growth rate as reported in Q1 2026 results. Its Q1 2026 results further underscored resilience, with net sales rising 8.2% to $65.98 billion and diluted EPS climbing to $4.50, up 11.4% from $4.04 in the prior year according to stock analysis. These figures highlight Costco's ability to maintain strong operational performance despite macroeconomic headwinds.

However, the company's valuation appears stretched. As of November 2025, Costco's stock price stood at $905.02, while discounted cash flow (DCF) models suggest intrinsic values ranging from $237.09 to $1,182.23 per share. The disparity between the market price and DCF estimates reflects divergent assumptions about future cash flows and risk. A conservative DCF model using a 10% discount rate and 3% terminal growth rate calculates an intrinsic value of $301 per share, implying a 66.7% overvaluation. Conversely, more optimistic models, such as one assuming a 15.22% growth rate and 7% discount rate, project a fair value of $1,077.41, suggesting the stock is reasonably priced.

Industry Comparisons and Analyst Perspectives

Costco's valuation premium is stark when compared to its peers. The retail sector's median P/E ratio in Q3 2025 was 21.68x according to retail industry analysis, and the S&P 500's forward P/E remained above historical averages, driven by AI-driven innovation and resilient consumer spending. Analysts argue that Costco's P/E ratio of 48.73x is overextended, exceeding a calculated fair ratio of 33.13x based on its growth fundamentals according to industry reports. This disconnect raises concerns about near-term upside potential, even as the company's fundamentals remain robust.

Long-term projections, however, offer a more balanced view. Analysts forecast Costco's revenue to grow at a compound annual growth rate (CAGR) of 7.4% from 2025 to 2028, with expectations of continued expansion into 2030 according to financial forecasts. By 2030, revenue is projected to reach $343.0 billion, and EPS is expected to hit $26.42, representing a 10.2% average annual growth rate. These projections are underpinned by Costco's strategic initiatives, including the expansion of its Kirkland Signature brand, international store openings, and digital sales growth (up 20.5% in Q1 2026) according to investment analysis.

Retail Industry Trends and Competitive Dynamics

The retail sector is undergoing a transformation driven by AI integration and shifting consumer preferences. AI is reshaping inventory management, customer interactions, and personalized marketing, with 25% of shoppers expected to use AI chatbots for product discovery in 2026. While these innovations could enhance efficiency, they also raise profitability challenges, particularly for smaller retailers. Forrester predicts a wave of bankruptcies among U.S. specialty retailers in 2026, intensifying competitive pressure on all players.

Costco's high valuation must be contextualized within this evolving landscape. Its forward P/E of 51.4x reflects investor confidence in its ability to navigate these challenges through scale and operational discipline. The company's 92.7% U.S. membership renewal rate and plans to open 30 new stores annually provide a durable growth foundation according to financial modeling. However, the retail media market's emergence as a $36.53 billion industry by 2033 could create new revenue streams for competitors, potentially diluting Costco's market share.

Conclusion: Balancing Risks and Rewards

For long-term investors, Costco's stock presents a paradox: strong fundamentals coexist with a valuation that appears overextended relative to industry benchmarks. While DCF models and P/E ratios suggest overvaluation, the company's growth trajectory-driven by membership expansion, digital innovation, and international expansion-justifies a premium for those with a multi-year horizon.

The key consideration lies in the sustainability of Costco's growth. If the company can maintain its 8–9% revenue growth and 10% EPS growth rates through 2030, as analysts project, the current valuation may prove justified. Conversely, any missteps in managing costs, competing with digital-native retailers, or adapting to AI-driven consumer trends could exacerbate the valuation gap.

In the end, Costco's stock is neither a clear "buy" nor a "sell" for long-term investors. It is a high-conviction bet on the company's ability to outperform a rapidly evolving retail sector. For those who believe in Costco's enduring appeal and operational excellence, the stock's current price may represent a compelling opportunity-provided they are prepared to weather near-term volatility.