Costco's Growth Story Masks Severe Overvaluation Concerns

What happened

A Motley Fool article published on December 13, 2025, touts Costco's steady same-store sales growth, rising net income, and new warehouse openings as reasons for long-term investment optimism. However, the DeepValue master report, based on SEC filings including the 2025 10-K and 10-Q, reveals that Costco's stock trades at a rich premium of ~47x trailing earnings and ~28x EV/EBITDA, over 200% above a conservative DCF estimate of ~$271 per share. While Costco demonstrates durable competitive advantages with over 90% membership renewals and robust free cash flow growth, the current price embeds years of high-single-digit growth and flawless execution in a low-margin model. The report warns that any moderation in traffic, renewals, or Kirkland private-label momentum could trigger meaningful multiple compression, skewing risk/reward toward potential downside. Thus, despite strong operational performance, valuation discipline necessitates a cautious stance for investors.

Implication

The valuation gap highlights that Costco's stock is priced for perfection, leaving minimal room for error in a cost-sensitive retail environment where wage inflation and competitive pressures persist. Key risks include potential declines in membership renewal rates, especially among newer online cohorts, and decelerating comp sales relative to peers like Sam's Club, which could erode the premium multiple. On the upside, sustained high-single-digit EPS growth from international expansion and Kirkland mix improvements, or a significant pullback in share price, might justify a more favorable investment entry point. For now, investors should closely monitor quarterly comps, membership metrics, and private-label penetration while maintaining a valuation-aware approach. Ultimately, the investment case hinges on balancing Costco's exceptional franchise strength against its expensive valuation, which currently favors patience over action.

Thesis delta

The Motley Fool article's optimistic portrayal of Costco's growth does not shift the DeepValue report's POTENTIAL SELL stance, as it overlooks critical valuation overhangs and embedded risks. The thesis remains unchanged: Costco is overvalued, and investors should await either a price correction or evidence of superior operational momentum before considering new capital allocation.