Costco Has Grown Its Membership Base no Matter What the Economy Has Done. Does That Make It a Forever Hold?

Costco Wholesale (NASDAQ: COST) stock has been a long-term winner, delivering a 481% return over the last decade. Its paid membership base has increased every year, including during the brief recession in the second quarter of 2020.

That consistency makes Costco easy to label a "forever hold." The real question, though, is whether today's valuation makes it a good buy right now.

Image source: Getty Images.

Consistent membership growth

The National Bureau of Economic Research says the last U.S. recession lasted just two months, from February through April 2020. Even with the COVID-19 shock, Costco still grew paid memberships like any other year.

For fiscal 2020 (ended in August), paid memberships reached 58.1 million, up from 53.9 million in fiscal 2019. That figure has climbed every year since, even as high inflation squeezed consumers, reaching 82.9 million through the fiscal third quarter of 2026.

The best thing about this membership model is that once customers sign up, they tend to stay. Costco's renewal rates are consistently near or above 90%. Shoppers love a bargain, and Costco has perfected the discount warehouse model, leading to consistent sales growth and returns for shareholders.

Importantly, Costco's razor-thin profit margin makes it very difficult, if not virtually impossible, for a competitor to successfully beat it without enormous financial strain. Through the first three quarters of fiscal 2026, Costco reported net sales of $203 billion -- just enough to cover merchandise costs of $181 billion. After paying operating expenses and taxes, the company's net profit margin was just 3% over the last year.

Is the stock a buy now?

Costco is continually reinvesting to secure more deals for members. Lower prices keep members coming back and attract new ones year after year. This cycle of generating high-volume sales and recycling the profits back into more value for customers gives Costco a durable moat. Few retailers can rival Costco's sales volume and value.

The only catch is the stock's valuation. It trades at a high 47 times trailing earnings -- well above the 30 price-to-earnings (P/E) multiple it traded at 10 years ago. That's expensive when earnings might only grow about 11% annually, based on the average estimate on Wall Street.

Costco has the durable business model that makes it a solid long-term investment. However, investors thinking of buying the stock today have to consider the potential for the stock to underperform if the P/E reverts back to its historical average. It might be better to wait for a lower price before starting a position.

John Ballard 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.