Key Points
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Costco expanded rapidly over the past ten years.
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But its declining renewal rates and high valuation could limit its gains.
If you had invested $1,000 in Costco (NASDAQ: COST) ten years ago, your investment would be worth $6,500 today — or $7,725 if you had reinvested your dividends. That same investment in an S&P 500 index fund, including reinvested dividends, would only be worth about $4,000.
Costco beat the market by consistently opening more warehouses, adding new cardholders, and maintaining high renewal rates. But will a fresh $1,000 investment in Costco today turn into thousands of dollars again over the next decade?
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A person shops at a warehouse store.
Image source: Gety Images.
How fast is Costco growing?
Costco can afford to sell its products at low margins because it generates most of its profits from its membership fees. Its scale also enables it to negotiate lower prices with suppliers and to lock in shoppers through ancillary services such as gas stations, food courts, and optical centers.
From fiscal 2020 to fiscal 2025 (which ended last August), Costco’s revenue and EPS grew at CAGRs of 10.5% and 15.1%, respectively. Its warehouse count grew from 795 to 914, its total cardholders rose from 105.5 million to 140.6 million, and its global renewal rate increased from 88% to 90.5%. It achieved that expansion even as inflation, higher interest rates, geopolitical conflicts, and other macro headwinds rattled the global economy. It continued to gain new members even after hiking its membership fees for the first time in seven years in 2024.
Can Costco maintain that momentum?
In the first half of fiscal 2026, Costco’s adjusted net sales (excluding fuel and forex) rose 6.5%, its number of warehouses increased to 924 locations, and its number of cardholders grew to 147.2 million. However, its global renewal rate dipped to 89.7% in both the first and second quarters. It blamed the slowdown on lower renewal rates among its “digitally signed” members, who enrolled online rather than at a warehouse. These shoppers are mostly younger and more likely to cancel their memberships if they don’t visit Costco enough.
Costco is ramping up its targeted digital communications, promotions of ancillary services, additional perks, and auto-renewal features to stabilize those renewal rates. Still, it admits it could take at least a few quarters for those efforts to pay off.
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From fiscal 2025 to fiscal 2028, analysts expect Costco’s revenue and EPS to grow at CAGRs of 8% and 11%, respectively. However, its stock isn’t cheap at 49 times this year’s earnings.
If Costco matches analysts’ estimates, grows its EPS at a 10% CAGR from fiscal 2028 to fiscal 2036, but trades at a more sustainable 25 times earnings by the final year, its stock would only rise about 34% to just over $1,300 over the next decade. So while investing in Costco today might make you richer, it might be a better long-term buy at lower valuations.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.