Costco Wholesale Corporation (COST): A Bull Case Theory
We came across a bullish thesis on Costco Wholesale Corporation (COST) on Sanjiv's Substack. In this article, we will summarize the bulls' thesis on COST. Costco Wholesale Corporation (COST)'s share was trading at $1,051.69 as of 4th June. COST's trailing and forward P/E were 59.65 and 51.81 respectively according to Yahoo Finance.
A grocery store employee stocking shelves with fresh fruits and vegetables.
Costco's Q3 FY2025 results reaffirm its status as a uniquely disciplined and predictable retail compounder. With a decade-long revenue CAGR of 9%, decomposed into 2.64% store growth and 6.13% comparable sales growth, the company continues to execute on its '12/9/3' margin model—anchored in capped gross margins and low opex to deliver relentless value to members. In Q3, sales rose 8% y/y to $63.2bn, with net income up 13.2% to $1.90bn.
Membership income—65% of net profits—remains central to Costco's strategy, with renewal rates staying above 90% despite recent dilution from promotional cohorts. Even amid broad inflationary and tariff headwinds, Costco's low-SKU model and agile sourcing—including pulling forward seasonal imports and shifting production geographically—allow it to avoid widespread price hikes, unlike peers such as Walmart or Target. E-commerce (+14.8%) and Kirkland Signature (+50 bps sales mix gain) reinforce Costco's brand value and adaptability.
Capex remains disciplined (~$5bn expected for FY25), aligned with its historic 7.8% CAGR, keeping capital intensity in check. The high-traffic store challenge is being addressed through new openings, tech-enabled checkout, and expanded gas station hours. Yet, despite its operational excellence and 17.5% CAGR shareholder return over 23 years, the stock trades at a two-year forward P/E of 52.8x and FCF yield of just 1.9%—too rich for the implied 4–6% long-term return.
'While we continue to respect the business and hold a 1% legacy position, we believe the current valuation offers little margin of safety, and do not plan to add to the position at these levels.' - Sanjiv.
Previously we have covered a bullish thesis on Costco Wholesale Corporation (COST) by FluentInQuality on Substack in March 2025, which aligns with Sanjiv's June 2025 analysis highlighting Costco's consistent execution, member-first model, and strategic discipline. Since March, the stock has appreciated by 0.4%. Both investors admire Costco as a high-quality compounder, though Sanjiv expresses caution on valuation, unlike FluentInQuality, who emphasizes Costco's long-term compounding potential despite its premium multiple.
Costco Wholesale Corporation (COST) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 93 hedge fund portfolios held COST at the end of the first quarter which was 96 in the previous quarter. While we acknowledge the risk and potential of COST as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
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