Costco is a great business. Your entry price still matters.

It is possible to admire a business so much that you stop negotiating with its stock price. Costco is a useful test of that habit.

A repeatable business, loyal customers and opportunities to reinvest can justify paying more for a dollar of earnings. The word “more” still needs a number. At some price, much of the benefit of future growth has already been handed to the seller.

Our view is straightforward: Costco’s quality belongs in the earnings forecast and the range of reasonable exit multiples. It should not remove the entry price from the calculation.

Theory A makes the premium something you can inspect. Start with the chart’s historical-average multiple, then enter your own. A stock above that reference line is priced above that particular earnings benchmark. It is not automatically overvalued: growth, business quality and the chosen period can justify a difference.

The useful test is whether your expected return survives a smaller premium. The five-year example below shows how earnings growth and a lower valuation can pull returns in opposite directions. Its figures are hypothetical, not values pulled from the live Costco chart.

There is a real business behind the premium

Costco reported $297.247 billion in net sales and $5.907 billion in membership fees for fiscal 2026. The comparable fiscal 2025 figures were $269.912 billion and $5.323 billion. Both revenue streams grew. The company’s filed results show the scale of the business behind the argument.

Membership revenue is an attractive feature of the model, but it is not a separately reported pot of pure profit. The warehouses, prices, service and operating infrastructure all contribute to the reason members renew. Subtracting membership fees from total earnings and declaring the rest of the business unprofitable would blur that relationship.

For valuation, the important question is how the entire business can increase earnings per share: more members, more productive locations, new warehouses, pricing and costs. Assigning each driver a sensible contribution is more useful than assuming a premium multiple will take care of the return.

Ten percent earnings growth can produce almost no price return

Suppose you buy a company at 60 times earnings. EPS grows 10% annually for five years. At the end, investors pay 35 times earnings. Those are hypothetical assumptions, not Costco’s current P/E or our forecast.

Earnings rise about 61%. The share price falls about 6%, equivalent to roughly −1.2% a year before dividends. The business did its job. The starting valuation demanded more than the business delivered under those assumptions.

At an ending multiple of 60, the modeled annual price return is 10%, matching EPS growth. At 45, the return falls to about 3.8%. The exit multiple is doing enough work that it deserves to be debated in plain sight.

Why a premium might persist

The strongest response is that a premium-quality business may remain premium-priced. An investor who insists on an ordinary multiple for an unusually dependable business can spend years waiting and miss considerable compounding.

That is a real cost. A high multiple is not a timer counting down to a correction. If earnings growth is stronger or lasts longer than expected, a purchase that initially looked expensive can work out well. Interest rates and the opportunities available elsewhere can also change what investors are willing to pay.

But “the premium might persist” should appear as an explicit case. Put it beside a case with a smaller premium. If the investment only clears your return hurdle when future buyers remain equally enthusiastic, you have learned something important about the bet.

Build a return hurdle before picking a price target

Choose a holding period and a required return. Estimate earnings per share over that period, then use several possible exit multiples. Work back to the entry price that makes each case acceptable. The resulting range is an invitation to compare assumptions, not a claim that one decimal place reveals intrinsic value.

Include dividends when estimating total return. These examples show price return so you can see the effect of earnings and valuation without mixing in another assumption. A special distribution should not quietly become a recurring annual payment in the forecast.

Use per-share earnings rather than total company profit. Changes in share count affect what each share owns. Avoid mixing a trailing earnings denominator at entry with an unexplained forward denominator at exit.

What would change our view?

Faster sustained EPS growth, more productive reinvestment or a lower entry multiple would make a demanding valuation easier to support. A higher price without a corresponding improvement in earnings prospects would make the hurdle harder. The business can remain excellent in either case.

When asking whether Costco is overvalued, write down the return you expect and the assumptions that produce it. “Great company” describes what you want to own. The model tells you what owning it at a particular price asks the future to deliver.

The same arithmetic becomes more demanding when the future business is less established. See how to put Tesla’s expectations into an earnings model.