Should You Hold or Exit Your Costco (COST) Position? A 2026 Valuation Reality Check

The Valuation Paradox Facing Blue Chip Investors

As a blue chip stock, Costco Wholesale (NASDAQ: COST) has long represented stability and consistent returns for long-term portfolios. Yet the numbers tell a complicated story for investors entering 2026. Trading at $860 per share with a valuation multiple of 42 times current earnings and a forward dividend yield of just 0.6%, Costco presents an interesting tension: solid business fundamentals paired with limited near-term upside.

The stock’s recent performance underscores this conflict. Over the past year, Costco declined more than 10% while the S&P 500 climbed 16%. From its February record high, the stock has retreated nearly 20%—a pullback that raises legitimate questions about whether current valuations leave room for meaningful appreciation.

Why Costco’s Business Model Remains Resilient

Costco’s operational engine continues to perform steadily across multiple dimensions. The warehouse model depends on a simple but powerful dynamic: membership fees drive profitability, allowing the retailer to operate on razor-thin product margins. By leveraging scale to secure better supplier terms and maintaining a deliberately limited product selection, Costco minimizes inventory drag while maximizing purchasing power.

The numbers confirm this strength. Over the five-year period from fiscal 2020 through fiscal 2025, Costco achieved:

• Comparable sales growth accelerated to 7.6% in fiscal 2025, up from 5.2% in fiscal 2023
• Warehouse expansion progressed from 795 locations to 914, adding 119 facilities
• Cardholder base grew from 105.5 million to 140.6 million members
• Renewal rates consistently held near 90%, reaching 90.5% globally

Last September’s first membership fee increase in seven years proved the potency of Costco’s pricing power. The company not only maintained its renewal rate but continued adding new members. In the first quarter of fiscal 2026, comparable sales rose 6.4% as the warehouse count reached 923 locations and the cardholders surpassed 145.9 million—though the renewal rate dipped slightly to 89.7%.

Growth Drivers Ahead: What’s on Costco’s 2026 Roadmap

Costco plans to open 28 new warehouses during fiscal 2026, reduced from an earlier 35-warehouse target due to timing adjustments in Spain, yet still aligned with its historical 25-30 unit annual expansion pace. The company remains committed to adding 30+ warehouses annually in future years.

Beyond physical expansion, Costco is channeling investment into its e-commerce platform, which is outpacing its traditional warehouse sales growth. Online enhancements and logistics infrastructure upgrades should capture incremental revenue opportunities.

A quieter but significant lever involves the Executive membership tier. This higher-value segment grew 9.1% year-over-year to reach 39.7 million members (27% of total cardholders) in Q1 fiscal 2026. As Costco shifts its mix toward these premium members, who receive expanded discounts and benefits, it creates additional revenue and margin opportunities.

Analyst expectations for fiscal 2026 project 8% revenue growth and 11% adjusted EPS growth. For fiscal 2027, expectations moderate to 7% revenue growth and 10% EPS expansion.

The Near-Term Valuation Challenge

Costco’s core business deserves credit for durability. Rising inflation and tariffs may compress gross margins near-term, yet the fundamental expansion trajectory appears sustainable. The problem, however, isn’t the business—it’s the price tag.

At 42 times earnings, Costco trades at a premium valuation that leaves limited room for multiples expansion. More problematically for income-focused investors, the 0.6% yield offers minimal income cushion as interest rates move lower. These two factors—stretched valuation and meager yield—constrain the stock’s near-term appreciation potential.

For investors who already own Costco, the case remains reasonable for holding. The company’s predictable growth, defensive characteristics, and long-term compounding potential suit buy-and-hold strategies better than short-term trading. However, prospective buyers should recognize that current prices already reflect much of the good news.

The Verdict for 2026

Costco remains a competent long-term holding, deserving its blue chip stock classification through consistent execution and market resilience. But the valuation environment suggests patience may serve better than aggression. Rather than chase current prices, investors new to the position might prudently await a more attractive entry point. For existing shareholders, holding and allowing the business to grow into its valuation represents the more sensible path than exiting in today’s uncertain market environment.