From Yahoo Finance.: 2025-06-07 14:23:00

Costco’s (COST) high valuation is raising concerns among investors as it trades near all-time highs, with earnings multiples surpassing tech giants. Despite modest growth projections, the stable revenue from membership fees justifies the premium valuation and offers predictability. Critics question the steep premium for a company with modest growth expectations and razor-thin margins.

Costco’s business model, anchored in recurring membership fees, provides stability and profitability, leading to a defensive stock profile with low risk. Membership income rose 10% in the most recent quarter, with a high renewal rate, demonstrating brand loyalty and value perception. While the valuation may seem stretched, stability and cash flow certainty justify the premium.

Costco’s unique model of high-volume, low-margin sales, coupled with a membership-driven revenue stream, ensures profitability even during weak consumer spending periods. The company’s ability to gain market share and grow through macroeconomic headwinds sets it apart from competitors like Target. Costco’s stable business model minimizes the impact of macro risks.

Despite its premium valuation, Costco’s low-risk business model justifies the high multiples. An analysis using a discounted cash flow model suggests the current stock price aligns with realistic assumptions. While the valuation may seem justified under favorable conditions, any macroeconomic shifts could impact the margin of safety. Analysts are moderately bullish on Costco, with a price target implying potential upside.

Given the strength and stability of Costco’s business model, its premium valuation appears justifiable with no significant concerns challenging a positive outlook. While near-term upside may be limited, Costco remains positioned for steady, long-term growth. Maintaining a cautious Buy rating, Costco offers a solid investment opportunity for long-term compound growth.



Read more at Yahoo Finance.: Why Costco Stock (COST) May Be a Smarter Investment Than Big Tech