Is Costco Stock Set to Rebound Higher in 2026?

Core Viewpoint - Costco Wholesale has demonstrated strong business growth, but its stock price valuation raises concerns about whether it is justified given its current earnings multiple [1][10]. Business Performance - In the first quarter of fiscal 2026, Costco's total sales increased by 8.2% year over year to approximately $66 billion, with comparable sales rising by 6.4% and digitally enabled comparable sales increasing by 20.5% [4]. - The growth in comparable sales was attributed to both increased customer traffic and higher average transaction sizes [4]. - Costco's "other international" markets, excluding the U.S. and Canada, showed faster comparable sales growth, with a 6.8% increase in fiscal Q1 compared to 5.9% in the U.S. [5]. - For fiscal 2025, total sales rose by 8.1% year over year to about $270 billion [6]. Membership Growth - Membership fee income rose by 14% year over year to approximately $1.33 billion in the first quarter, outpacing sales growth [8]. - A membership price increase in September contributed to nearly half of the membership income growth, while the membership base also expanded, with paid executive memberships increasing by 9.1% to 39.7 million and total paid members rising by 5.2% to 81.4 million [9]. Valuation Concerns - Costco's price-to-earnings ratio stands at 47, with a forward price-to-earnings ratio of 42, which may be considered too high for the current market [10]. - The high valuation introduces risks, as shares could revert to a lower valuation despite strong business execution [10][11]. - Costco's valuation is currently higher than that of major tech companies like Nvidia and Amazon, which raises questions about its sustainability [11]. Competitive Landscape - The competitive environment is intensifying, particularly from e-commerce players like Amazon and brick-and-mortar competitors such as Walmart's Sam's Club and grocery chains like Kroger and BJ's Wholesale [12].