Costco's Valuation Under Scrutiny: Is the Bull Case Still Valid?

Costco's stock has long been a darling of the market, celebrated for its membership-driven model and consistent growth. But as the stock trades at a price-to-earnings (P/E) ratio of 50.72 as of October 30, 2025-well above its 10-year historical average of 37.29-investors are asking: Is the bull case still valid? The answer hinges on a delicate balance between Costco's resilient business model and the risks of a stretched valuation.

The Case for Costco: Resilience and Growth

Costco's recent financial performance is nothing short of impressive. For October 2025, the company reported net sales of $21.75 billion, an 8.6% year-over-year increase, driven by 6.6% U.S. comparable sales growth and a staggering 16.6% surge in e-commerce sales, according to its October net sales report. This digital momentum is a critical tailwind, as online sales now account for a growing share of its revenue. Analysts at Telsey Advisory Group and Oppenheimer have set price targets of $1,100 and $1,050, respectively, reflecting confidence in Costco's ability to sustain this growth, as noted in the October net sales report.

The company's expansion strategy further bolsters the bull case. Costco plans to open 28 new warehouses in fiscal year 2025, with a focus on international markets. Its global footprint already includes 908 warehouses across 109 locations, and the company is leveraging localized sourcing-such as direct imports from Asia for its Asia-Pacific stores-to reduce costs and maintain competitive pricing, as reported in a Yahoo Finance piece. These moves are not just about scale; they're about reinforcing Costco's value proposition in an era of rising inflation and shifting consumer behavior.

The Valuation Dilemma: Justified or Overstretched?

While Costco's fundamentals are robust, its current P/E ratio of 50x raises eyebrows. This is nearly double the industry average of 21.7x and suggests that investors are pricing in aggressive future growth. Analysts have set a fair value of $1,059.55 for Costco, implying that the stock could still rise if earnings and profit margins meet expectations, according to a Bloomberg report. However, this optimism comes with caveats.

Rising labor costs, supply chain bottlenecks, and geopolitical risks-such as U.S.-China tariff tensions-pose significant headwinds. Costco's ability to maintain its low-cost model while navigating these challenges will be critical. For instance, while the company has mitigated some tariff impacts through inventory stockpiling and vendor renegotiations, according to a MarketMinute analysis, these are short-term fixes. Long-term sustainability will depend on operational agility and the continued appeal of its membership model.

Earnings Projections: A Mixed Picture

Looking ahead, the data tells a nuanced story. For the quarter ending November 30, 2025, analysts project earnings of $4.27 per share, with revenue expected to rise 7.9% to $67.05 billion, per a Reuters preview. Zacks Research forecasts further growth, estimating $19.95 in earnings per share for FY2026 and $21.87 for FY2027, per a MarketBeat roundup. While these numbers are positive, the slight downward revision in FY2026 expectations-from $20.11 to $19.95-signals some uncertainty about near-term execution.

The lack of long-term projections beyond 2027 complicates the analysis. Without clear guidance on how Costco will adapt to macroeconomic shifts or technological disruptions, investors are left to extrapolate current trends. This uncertainty is reflected in the stock's volatility; despite strong sales, Costco's shares fell in early November 2025, raising questions about market sentiment, according to a Morningstar report.

The Bottom Line: A Calculated Bet

Costco's valuation is undeniably stretched, but its business model remains a fortress. The company's ability to drive e-commerce growth, expand globally, and maintain high customer retention (its membership base is a key profit driver) provides a strong foundation. However, the high P/E ratio means that any misstep-whether in earnings growth, cost management, or geopolitical stability-could lead to a sharp correction.

For investors, the key is to balance optimism with caution. Costco's bull case is valid if the company can deliver on its expansion plans and navigate macroeconomic risks. But with the stock trading at a premium to both its historical norms and industry peers, the margin for error is slim. As always, the market is pricing in perfection; the question is whether Costco can deliver it.