Should You Buy Costco Stock for the Long Haul? Here's the Honest Answer.

Many investors who do not own Costco Wholesale (NASDAQ: COST) likely wish they had bought the stock in the distant past. A loyal customer base, appealing product mix, and successful execution have made it one of the world's top retailers.

Unfortunately, these factors do not make the retail stock a buy. Instead, investors who do not already own the stock should keep it on a watch list, and here's why.

Image source: The Motley Fool.

The state of Costco stock

Despite Costco's attributes, the company's success is not news to investors, and its valuation confirms that.

Today, the stock sells at a price-to-earnings ratio (P/E) of 49. This is far above other brick-and-mortar retailers such as Walmart and Target. It even surpasses Amazon, which routinely traded at more than 50 times earnings for years but now sells at a P/E of 29.

COST PE Ratio data by YCharts.

This is not a new issue. Costco has not reached 25 times earnings since 2017. Even worse for bargain hunters, it has not traded below 15 times earnings since 2009!

One could make a case for overlooking Costco's valuation if it grew rapidly. Still, while it routinely posts respectable sales growth, one might think twice about paying such a high multiple.

In the first nine months of fiscal 2026, which ended May 10, the company reported $207 billion in total revenue, a 10% yearly increase. That led to around $6.2 billion in net income in the first three quarters of the year, an increase of 13% from year-ago levels. That slightly exceeded the 8% yearly revenue growth in 2025 and the 10% rise in net income for the same period, perhaps because higher fuel prices in recent months have slightly boosted revenue.

That may prompt investors to look at the company's price/earnings-to-growth ratio (PEG), which incorporates growth with valuation. However, instead of making a case for buying Costco, having a PEG ratio that is twice as high as Walmart's merely confirms how expensive the stock has become.

COST PEG Ratio data by YCharts.

Knowing that, investors may ask what they get for paying such a premium. Unfortunately, Costco's stock has been flat since the beginning of 2025 and has been pulling back since the middle of May. Between the high multiple and the recent stock performance, buying the stock right now carries a risk that many investors may not want to take.

Watching Costco stock

Knowing its record for consistent execution and historically high valuations, investors accept the hard truth that Costco stock probably belongs on a watch list instead of in their portfolios.

It may take another financial crisis to take the stock back down to 15 times earnings. Nonetheless, even though revenue and earnings growth have slightly accelerated, it is probably not enough to justify paying nearly 50 times earnings.

For now, that probably leaves interested shareholders with little choice but to watch and wait. If a severe market downturn occurs, investors should consider buying this high-quality name if it falls below 35 times earnings.

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.