Costco Wholesale Corp (COST)

Conclusion

Costco Wholesale Corp runs membership warehouses in the United States and a growing list of other countries, selling groceries, general merchandise, fresh food and fuel. At 1066.18 USD on 2026-11-09, the company has a market capitalisation of 472.5 billion USD.

The verdict is overvalued. Today's multiples sit above their own ten-year medians: the P/E ratio of 51.2 compares with a median of 39.9, a premium of 28.3%, and EV/EBITDA of 32.0 compares with a median of 22.6, a premium of 41.8%. The DCF gives 441.87 USD per share. The fair value band runs from 501.03 to 751.55 USD with a midpoint of 626.29 USD, a margin of safety of -41.3% at the current price. The reverse DCF implies growth of 19.7% a year, against revenue growth of 9.1% a year over five years and free cash flow per share growth of 11.8%.

Three numbers support the case: ROIC of 38.1% against a WACC of 9.1%, a net cash position with net debt to EBITDA of -0.89x, and free cash flow conversion of 101.8% over the last twelve months. Three weaken it: a price-to-sales ratio of 1.56 against a median of 0.99, a thin operating margin of 3.85%, and a quick ratio of 0.57.

Financial health

The colour is green, held up by a net cash position, very high interest coverage and a high Altman score. The current ratio is 1.06, a neutral reading, and the quick ratio is 0.57. Net debt to EBITDA is -0.89x and debt to equity is 0.24. Interest coverage is 80.6x. The Altman Z-score is 9.65, in the safe zone, though the Altman model was designed for manufacturers and Costco is a retailer, so it is a rough guide. Insolvency risk: low, about 0.25% by the estimate of the Ohlson model over one to two years.

Earnings quality

The colour is green. Free cash flow conversion is 101.8% over the last twelve months and 92.6% over five years. The accrual ratio is -7.9%, and stock-based compensation is 0.3% of revenue, leaving free cash flow after it at 8.47 billion USD. The share count has been unchanged over five years (a compound change of 0%). The Piotroski score is 6 of 9. The Beneish M-score is not available. The company beat estimates in 6 of the last 8 quarters, with an average surprise of 1.3%. Estimate revisions lean upward: 21 up and 4 down for the current year, and 14 up and 2 down for the next year.

Profitability

The colour is yellow. Gross margin is 12.8% against a ten-year median of 12.9%. Operating margin is 3.85% against a median of 3.39%, and net margin is 3.04% against 2.57%. Operating margin stability is 7.3%. ROIC is 38.1% against a WACC of 9.1%, a ROIC minus WACC of 29.1%, and a five-year median ROIC of 33.3%. The DuPont split shows a net margin of 3.04%, an asset turnover of 3.40x and an equity multiplier of 2.49x, giving a return on equity of 25.8%. Returns come mainly from fast turnover, not leverage. The thin absolute operating margin is what holds the colour at yellow.

Growth

The colour is green. Revenue compound growth is 7.8% over three years, 9.1% over five and 9.8% over ten. Earnings per share compound at 13.6%, 13.0% and 14.6% over the same periods. Free cash flow per share compounds at 11.7%, 11.8% and 30.7%. Revenue grew in all 10 of the last 10 years. The next-year earnings growth estimate is 9.8%.

Valuation

The colour is red. Current multiples carry premiums to their ten-year medians: P/E 51.2 against 39.9 (28.3%), EV/EBITDA 32.0 against 22.6 (41.8%), price to free cash flow 50.3 against 38.3 (31.5%), price to sales 1.56 against 0.99 (57.0%) and price to book 13.2 against 10.2 (29.5%). The fair value from historical multiples is 810.71 USD. The DCF gives 441.87 USD per share at a discount rate of 9.15%, with the terminal value at 57.4% of it. The fair value band is 501.03 to 751.55 USD, and the margin of safety is -41.3%. The reverse DCF implies 19.7% growth, against 9.1% revenue growth and 11.8% free cash flow per share growth over five years. The fair value is an order of magnitude built on fixed assumptions, not a price target. The dividend yield is 0.52% and the payout on free cash flow is 26.2%.

Risks

The weakest numbers are the price-to-sales premium of 57.0%, the quick ratio of 0.57 and the operating margin of 3.85%. A slowdown in margins or growth would widen the gap to the current price, since the reverse DCF already needs 19.7% growth. The DCF depends on the terminal value for 57.4% of its result, so small changes in long-term assumptions move it a lot. The Altman score is a rough guide for a retailer. The Beneish M-score is not available. This analysis cannot see a debt maturity schedule or revenue by segment, so refinancing risk and the mix of profit by business line remain unknown.