Costco Stock (COST) Is Still a Great Buy after Valuation Reset

Costco COST +2.44% ▲ has just undergone a massive valuation reset, recording its largest drawdown (17.4%) since mid-2022 at the very end of last year. The key difference this time, however, is that the selloff was largely uncorrelated with the broader market (S&P 500 SPY -0.48% ▼ ), suggesting that the move was thesis-specific rather than macro-driven.

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Although the February 2025 all-time highs have not yet been surpassed, Costco shares have rebounded very strongly over the last two months, virtually offsetting recent declines and once again approaching the $1,000 level.

In other words, the market tested the thesis—especially with regard to the sustainability of membership renewal rates—and, so far, has decided that the noise was not synonymous with structural deterioration.

In my view, the recent episode seems far more like a digestion of expectations than a change in fundamentals—and that is precisely why I remain bullish on the stock. As long as the recurrent revenue pillar remains solid, the asymmetry continues to favor the buy side.

The Recurring Revenue Engine Behind Costco’s Moat

Costco is one of the most intriguing cases of recurring revenue outside the tech space. A substantial portion of the company’s bottom line today is effectively driven by membership fees rather than the sale of merchandise.

To put this into numbers, in its latest quarterly report, Costco posted $67.3 billion in net sales and $1.32 billion in membership fees. Assuming, in theory, that membership fees carry margins very close to 100% (Costco does not disclose the exact figure), and considering that operating income for the quarter came in at $2.46 billion, this implies that membership fees accounted for more than half of operating profit.

In practice, this means that even during adverse retail cycles, a meaningful portion of Costco’s bottom line remains structurally insulated. On top of that, membership renewal rates stand at 92.2% in the U.S. and Canada and 89.7% worldwide. In other words, Costco operates a remarkably strong loyalty model: it runs deliberately low merchandise margins (current gross margin from net sales at 11.3%) while driving high volume at a scale that virtually no other global retailer can replicate.

Costco’s Valuation Reset

Of course, Costco’s ultra-resilient business model is nothing new to the market—which is precisely why the company has historically traded at such elevated valuations, averaging around 46x trailing earnings over the last five years, more than double the industry average. And because membership fees effectively anchor Costco’s bottom line, even minor fluctuations in new member recruitment or renewal rates become highly sensitive variables when the stock is trading at demanding multiples.

Looking at the latest earnings results, the 92.2% renewal rate in the U.S. and Canada still appears extraordinarily high in absolute terms. However, it does represent a slight sequential decline from 92.3% in the August quarter, 92.7% in the May quarter, and 93% in the February quarter last year. That kind of gradual drift is enough to raise questions about model saturation—even though membership fee growth has remained in the double digits over the last three quarters.

Put all of that together with softer consumption trends, capital rotating back into tech/AI, and margins already near peak levels, and a P/E north of 60x became increasingly difficult to sustain.

Repricing the Multiple but Not the Model

After the market reacted skeptically to Costco’s recent results—especially around membership fee renewal rates—the outcome was essentially a valuation reset. Costco’s multiple reached 45x trailing earnings in early 2026, and since the reset occurred in valuation rather than in the business model itself, the market quickly realized this was an opportunity to buy the dip.

To begin with, January sales data came in strong, growing 9.3% year-over-year, while comp sales increased 7.1% excluding gas and FX effects. Digitally enabled comps (e-commerce) were especially strong, rising more than 30%. Not surprisingly, several sell-side analysts responded by raising their price targets over the past couple of months. Another crucial factor has been the broader market trend this year of capital rotating out of riskier tech (most notably the “SaaSpocalypse”) and into defensive consumer staples—as I noted in a recent article on Coca-Cola KO +1.32% ▲ .

At present, Costco trades at 53.5x earnings—still above its historical average and well above where it traded at the turn of 2025. As the company prepares to report its February quarter results on March 5, I believe that, as usual, a beat across the board is likely. However, the market will once again focus closely on membership renewal rates as the key needle mover.

In the most recent earnings call, management made it clear that the 10-basis-point sequential decline in renewal rates in the U.S. and Canada reflects modest near-term pressure from a higher mix of younger members signing up digitally and renewing at slightly lower rates. Also, the company has implemented targeted outreach to close that gap. Still, the CFO cautioned that “we may still see a slight decline in the overall renewal rate over the next few quarters.”

This suggests that the market is already aware of the noise around renewal rates—and therefore much of the risk appears priced in. What changes the game now is not whether renewal rates fluctuate by 10–20 basis points due to mix, but whether Costco can prove that the digital cohort is not structurally less sticky—rather, that this is simply a channel transition that can be corrected through engagement and communication.

Is COST Stock a Buy, According to Wall Street Analysts?

The sell-side consensus on Costco remains very bullish. Of the 24 ratings on Costco stock issued over the past three months, 19 are Buy, four are Hold, and only one is Sell, for an analyst consensus rating of Strong Buy. The average price target stands at $1,076.40, recently lifted by several upward revisions, implying an upside potential of 8.21% from the current share price.

A Reset That Strengthens the Bull Case

I view Costco’s recent valuation reset—although already partially reversed—as an improvement in the stock’s risk-reward profile, without any meaningful deterioration in the company’s fundamentals.

The core business remains solid, renewal rates continue to rank among the best in class, and recent sales momentum suggests that consumer resilience is still firmly in place. While minor fluctuations in renewal rates may continue to generate short-term volatility, they do not undermine the structural moat surrounding Costco’s business.

I believe the long-term compounding thesis remains intact for Costco, and over time, the stock should continue to justify premium valuation levels. For these reasons, I maintain my Buy rating.

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