Read This Before Buying Costco Stock for the Long Term​

Few can dispute that Costco (NASDAQ: COST) is one of the most solid retailers in existence. As of the end of the first quarter of fiscal 2026 (ended Nov. 23, 2025), it operated 921 warehouses in 14 countries.

Unfortunately, the stock earned no net gains over the last year despite its successes. That likely means that until the market addresses one key challenge with Costco stock, it is unlikely to be a good choice for investors; here's why.

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Why investors should not buy Costco stock

For now, investors should refrain from adding Costco shares because it cannot justify its valuation.

Indeed, Costco is a successful retailer. Unfortunately for new shareholders, its success is a known quantity, which is probably why it currently trades at a P/E ratio of about 50. Although investors often pay a similar premium or higher for some of the faster-growing stocks, fast-growing does not currently describe Costco's financials.

In fiscal Q1, Costco earned more than $67 billion in revenue, an 8% increase from year-ago levels. During that time, the increase in costs and expenses lagged the rate of revenue growth. Thus, its $2 billion in net income for the quarter rose 11%.

That performance is on par with Costco's past performance, as the company grew its profits by 10% in fiscal 2025. It is also a solid performance, but it is arguably not one that justifies paying 50 times earnings, particularly when investors have other choices.

One of those choices is Amazon, which was long a more expensive stock but now trades at 35 times earnings. Its largest U.S. rival, Sam's Club parent Walmart, sells at a P/E ratio of 40, though it did grow profits more slowly when not including a one-time benefit.

Amid such valuations, one could also make a case for buying Target at 13 times earnings despite its declining sales. In contrast, investors are unlikely to find Costco stock in the bargain bin. Its record low P/E was 14, which occurred back in 2009.

Should investors permanently give up on Costco?

As for whether to give up on Costco stock, the answer is possibly.

Costco stock is technically a buy, even under current conditions. Unfortunately, the premium in the stock leaves investors paying a high price for middling returns.

Moreover, even if the market endures another financial crisis and Costco stock becomes less expensive, the stock could still be expensive compared to other investment opportunities.

To some investors, such an occurrence may justify paying the premium for Costco stock. However, barring such an event, investors are likely better off seeking investment opportunities elsewhere.

Will Healy has positions in Target. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.