Costco: The Warehouse and the Meaning of Everything

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Costco Wholesale (COST 0.73%). The name itself suggests a certain… commitment. A commitment to bulk purchasing, to the slightly unnerving experience of navigating aisles wider than some suburban streets, and to the fundamental question of just how many jars of mayonnaise one family truly needs. It’s a retail operation, yes, one of the larger ones, but also a fascinating sociological experiment. For years, it’s been selling things to people, and people have been buying them. A remarkably straightforward arrangement, when you think about it. (Though thinking about it too much might lead to existential dread. Best not to.)

Over the past five years, a mere blink in the geological timescale of commerce, Costco shares have generated a total return of 182%. A perfectly respectable number. Not quite enough to fund a private space program, but certainly enough to acquire a truly impressive collection of novelty socks. The question, naturally, is whether this trajectory will continue. Will Costco remain a haven for bargain hunters and bulk buyers, or will it succumb to the inevitable entropy that affects all things? Let’s investigate, shall we?

Costco’s Growth: A Warehouse of Potential

Costco’s warehouses aren’t designed for browsing. They’re designed for acquisition. It’s a subtle difference, but a crucial one. You don’t wander into a Costco; you enter with a list, a strategy, and a vague sense of impending carbohydrate overload. This no-frills environment, combined with the thrill of discovering unexpectedly large quantities of obscure goods, creates a surprisingly addictive shopping experience. (It’s been theorized that the layout is based on a complex algorithm designed to maximize impulse purchases of rotisserie chickens. The data remains inconclusive.) As of November 23, 2025, there were 81.4 million membership households, a 5.2% increase year-over-year, with a worldwide renewal rate of 89.7%. Which suggests that, on balance, people are quite pleased with the arrangement.

In the first quarter of fiscal 2026, Costco generated revenue of $67.3 billion. A substantial sum, roughly equivalent to the GDP of a small island nation. (Though, admittedly, that island nation would need a very large warehouse.) This represents a 56% increase over the past five years, with net income up 72%. Costco, it seems, is rather good at the whole ‘making money’ thing. (A skill often underestimated in the modern business world.) The company plans to open 21 net new locations over the remainder of fiscal 2026, and “30-plus” per year going forward. A rather ambitious undertaking, considering the logistical challenges of sourcing enough industrial-sized jars of pickles.

Remarkably, Costco sees potential for continued expansion even in the United States, a market many would consider… saturated. The plan is to open approximately half of all new stores domestically and the other half internationally. A balanced approach, presumably. (Though one wonders if they’ve considered the potential for a global pickle shortage.)

Analysts predict a compound annual revenue growth rate of 7.6% between fiscal 2025 and 2028. A reasonable estimate, assuming the universe doesn’t suddenly decide to rearrange itself. With operating leverage on their side, the bottom line should expand even faster. (Though, naturally, this assumes that the laws of physics remain consistent.)

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The Cost Advantage: A Fortress of Savings

Costco’s success isn’t a mystery. It’s a direct result of scale. They move a lot of merchandise. And, crucially, they only stock around 4,000 SKUs per warehouse. Compare that to a typical supermarket, which carries tens of thousands. This limited selection allows Costco to exert enormous buying power with its suppliers. They can demand lower prices, which they then pass on to shoppers. (It’s a beautifully simple system, really. Though it does require a certain ruthlessness when negotiating with pickle manufacturers.)

This cost advantage has been key to Costco’s resilience, even as the retail landscape undergoes a dramatic transformation. Online shopping now accounts for over 16% of all retail spending, a significant increase from just 7.2% a decade ago. Yet, Costco continues to thrive, attracting more members and generating higher revenue and profits. (Perhaps people simply enjoy the tactile experience of purchasing 48 rolls of paper towels in person. It’s a valid hypothesis.)

Valuation: A Matter of Perspective (and Possibly Sanity)

Costco stock rarely goes on sale. Over the past five years, the lowest price-to-earnings (P/E) ratio it has traded for was 31.9. That’s considerably higher than the S&P 500’s current P/E multiple. Investors, it seems, recognize a good thing when they see it. (Or, at least, a consistently profitable one.) It’s a steady performer, with staying power and a track record of growth. It’s difficult to find fault with the business. (Though one could argue that the sheer volume of free samples is a potential health hazard.)

However, I believe buying shares at the current P/E ratio of 51.9 would be… optimistic. There’s very little margin for error. The steep valuation suggests that investors are already pricing in a great deal of future growth. And, frankly, I suspect the P/E multiple will come down eventually, creating a headwind for shareholders. The stock could very well underperform the market over the next five years. (Not because Costco is a bad company, mind you, but because the laws of financial gravity eventually apply to everything. Even warehouses full of mayonnaise.)

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2026-01-23 15:12