Costco in ’26: A Rather Good Proposition?

Now, Costco Wholesale, a firm that has, over the last decade, delivered a most agreeable return to its shareholders – a staggering 540%, if one is keeping score – is a subject worthy of a bit of pondering. It’s established a positively cultish following, you see, with subscribers devoted to a bargain and convenience, even if it does lead to acquiring rather more biscuits and bath salts than strictly necessary. A touch excessive, perhaps, but who are we to judge?

As we approach 2026, with the American consumer’s pocket feeling a trifle lighter and the job market exhibiting a hint of the slows, it strikes me as a rather opportune moment to give Costco a closer look. A bit of defensive positioning, you understand, is always the thing when the economic clouds begin to gather.

A Spot of Economic Jiggery-Pokery

On the surface, the U.S. economy appears to be doing rather splendidly as we enter 2026. Inflation has cooled to a respectable 2.7% in December, and the chaps at Goldman Sachs anticipate a robust 2.5% expansion in gross domestic product. However, one mustn’t be deceived by appearances, what! The economic picture is, shall we say, nuanced. A bit like a particularly complicated crossword puzzle.

According to the Federal Reserve Bank of Boston, it appears that the higher earners are doing the bulk of the spending, while those further down the scale are lagging. Foreclosures and vehicle repossessions are, alas, on the upswing, reaching levels not seen since those rather unpleasant days of the Great Recession. Costco, however, seems remarkably well-positioned to weather this particular storm, owing to its focus on value and a clientele that, generally speaking, isn’t counting the pennies quite so closely.

The average Costco shopper, you see, earns a comfortable $125,000 a year, placing them firmly in the category of those who haven’t felt the pinch quite so acutely. They’re an educated and frugal bunch, naturally, which explains their preference for bulk buying over the smaller, though admittedly less advantageous, shopping experience offered by the discount stores.

The Secret Sauce, So to Speak

An ‘economic moat,’ as the clever chaps call it, is a sustained advantage that keeps a company ahead of the pack. For Costco, this moat is largely built on size and operational simplicity, allowing it to acquire goods in tremendous quantities and pass the savings on to its loyal customers. A good bargain is always a delightful thing, wouldn’t you agree? And Costco further appeals to its thrifty clientele with loss leaders, such as those remarkably inexpensive hot dog combos and rotisserie chickens.

The aim, naturally, is to foster brand loyalty, and it works a treat. Customers are quite willing to shell out $65 a year for a basic membership (the $130 executive tier offers a few extra perks, like cash back). And retention rates consistently exceed 90%, giving the company a steady stream of high-margin revenue. The beauty of this model is that the more subscribers it has, the less reliant it becomes on those pesky grocery store margins, allowing it to offer even better value. A rather clever feedback loop, wouldn’t you say?

The strategy continues to deliver handsomely. In its fiscal first quarter (ending in December), Costco’s net sales jumped a respectable 8.2% year over year to $65.98 billion, driven by strong same-store sales, particularly in international markets.

Global expansion may well be the key to the company’s long-term success. The chief financial officer believes Costco may eventually have half of its total store count outside of North America. And with 85% of its 923 stores located in the U.S., Canada, and Mexico, aggressive expansion appears to be on the horizon.

A Dash of Caution, Perhaps?

Costco is renowned for offering low prices, but value-focused investors might find the stock’s valuation a touch steep. With a price-to-earnings ratio of 48, shares are considerably more expensive than the S&P 500 average of 22.

And that valuation is a bit difficult to swallow for a company growing at a single-digit clip. Costco certainly deserves a place on your investment watch list, but it might be prudent to wait for a more favorable price before adding it to your portfolio. A bit of patience, you see, is often rewarded.

2026-01-23 21:32

A Spot of Economic Jiggery-Pokery

The Secret Sauce, So to Speak

A Dash of Caution, Perhaps?

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