Costco Wholesale Corporation (NASDAQ:COST) continues to showcase exceptional fundamental strength, defined by continuous top-line growth, steady cash flow generation, and industry-leading return metrics. For fiscal 2026, total revenue reached $276.4 billion, up 8.1% year-over-year, complemented by membership fee revenue of $5.3 billion and a return on invested capital exceeding 28%. This core strength reinforces a long-term equity thesis centered on a self-reinforcing flywheel: high-margin, ultra-predictable membership income subsidizes razor-thin merchandise margins, which drives superior volume leverage and customer retention.
However, with the stock trading near historical valuation highs, market watchers are questioning whether macro shifts could disrupt this premium. Did Jim Cramer’s recent tactical shift around Costco signal a broader strategic change for the warehouse giant? Click to find out.
Costco closed out fiscal 2026 with an earnings call on September 24, and the report read like a company with nothing left to prove. Net sales reached $93.87 billion, up 11.2%, and net income landed at $2.998 billion. The business keeps compounding, which is exactly why the price tag deserves a harder look.
Why Members Keep Coming Back
Membership is the engine, and it is running hot. Costco now counts 84.1 million paid members, and 42.3 million of them pay for the higher Executive tier, a group that grew 9.4% and pushed that tier’s share of the base to a new high. Renewal rates ticked up to 92.3% in the US and Canada and 89.8% worldwide, so the base is sticking, not just growing. Membership fee income rose 7.3% to $1.849 billion, the steady profit stream sitting behind those low shelf prices.
The runway looks long, too. Management plans 33 openings in fiscal 2027 as it works toward 30 net new warehouses a year, and the shopper mix is getting younger. Members under 40 have grown nearly 60% since the pandemic and now make up more than a quarter of the base. Digitally enabled sales topped $33 billion with growth above 20%, while pharmacy grew nearly 20% and gas, travel, and cruises all pulled their weight. Shoppers also visited 3.3% more often, which means the ancillary businesses are adding reasons to walk through the door.
While Costco’s volume growth remains impressive, investors are closely watching head-to-head metrics against nimble competitors: is a rising retail rival quietly stealing market share and key star power from big-box leaders? Click to read. Furthermore, following a strong earnings print, valuation debates remain front and center: why did top analysts trim price targets even after a quarterly beat? Find out here.
Where the Cracks Could Show
The quarter was not spotless. Reported gross margin slipped to 11.02% from 11.13% a year earlier, as gas and digital sales outgrew core merchandise. Lower overhead covered the gap, with SG&A falling to 8.94% of sales, but that cushion relies on volume staying strong. Inflation is creeping in as well. The LIFO charge jumped to $152 million from $43 million, which the CFO tied to pricier memory in electronics and Middle East conflict costs for gas, motor oil, and resins.
Earnings quality also needs a careful read. Tariff refunds added $0.15 per share, and the $184 million received covers only about a third of the expected recovery, with management already spending part of it on cuts to Kirkland Signature items like coffee and black pepper. Growth is getting pricier too. Capital spending ran $6.4 billion in fiscal 2026, and the guide for fiscal 2027 is roughly $7.5 billion as the pipeline of new buildings fills up.
What the Market Is Paying
Hedge fund ownership slipped to 104 funds from 107, a small trim rather than an exodus, but notably not the accumulation you might expect after a report this strong. The forward P/E of 40.32 is the heart of it. You are paying about $40 for every $1 of earnings expected over the next year, which means years of steady membership growth, warehouse openings, and margin discipline are already baked into the price. That is a fair bet on a business with renewal rates this high, but it leaves little room for a stumble, since a slowdown in openings or a squeeze on margins would hit the multiple as well as the earnings.
Short interest sits at just 1.66% of the float, so almost nobody is betting against the business itself. Skeptics here are objecting to the price, not the operation, and when optimism is this widely shared, there is less cushion if the story wobbles. What does that multiple actually ask of a new buyer? Patience measured in years, and an expectation that the compounding keeps going without interruption.
The Real Debate
Costco’s operating story and its valuation are pulling in different directions, and neither side has cracked the other yet. The bulls need membership loyalty and the expansion plan to keep delivering so earnings grow into the premium. The bears need only to see margin pressure and rising costs outrun the operating leverage, because a multiple this high gives growth very little room to disappoint.
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