Is Costco Stock a Long-Term Buy?

Investors should realize that owning boring businesses can still lead to fantastic returns. Costco Wholesale (NASDAQ: COST) is proof. In the past decade, its shares have produced a total return of 662% (as of Feb. 26), more than doubling the S&P 500's comparable performance.

Is this top retail stock a long-term buy?

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Understand the fundamentals driving Costco

It's important that investors first figure out whether this is a high-quality business. If it isn't, it shouldn't even be on the watch list. In this case, there are some notable reasons to believe that Costco is an elite company. Its steady financial performance is one indicator. In the past five years, Costco's revenue increased at a compound annual rate of 9.3%. There was not a single down year.

This was driven by consistent same-store sales growth. The business is a favorite choice among consumers, even during times of economic turmoil, such as the COVID-19 pandemic and periods of above-normal inflation.

Over the past decade, online shopping has commanded a bigger share of the overall retail sector, thanks in large part to the rise of Amazon. This hasn't deterred Costco. It continues to add new members each quarter.

The company's competitive edge stems from its massive scale, with Q1 2026 (ended Nov. 23) net sales of $66 billion. As Costco carries fewer stock-keeping units than other supermarkets, it buys huge quantities of a smaller number of goods from suppliers, which leads to bargaining power. The end result: everyday low prices for shoppers. Add this to a no-frills warehouse environment, and customers appreciate the value proposition.

What the market is saying

If you agree that Costco is a fine enterprise, the next step is to gauge what the market thinks of the business. Is this a diamond in the rough? Or does the investment community fully understand Costco's merits?

Given that this company sports a significant market cap of $445 billion, the latter situation is reality. Everyone is aware of the durability of this business.

Consequently, the valuation is not cheap. In fact, it's extremely expensive. Costco stock trades at a price-to-earnings ratio of 53.6. For comparison's sake, this is a 15% premium to Nvidia, which has been the hottest company for years now. Many observers will question whether the retailer is deserving of a higher multiple than the booming artificial intelligence (AI) stock.

Investors should wait for a meaningful pullback before even considering a purchase of the shares. If valuation isn't that big of a concern for you, dollar-cost averaging might make sense, or adopting a plan of buying every month to take advantage of different price points.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Nvidia. The Motley Fool has a disclosure policy.