3 Reasons Costco Stock Deserves to Trade at a Sky-High Valuation

As of this writing, Costco Wholesale (NASDAQ: COST) trades at a premium valuation that can make value investors instantly look the other way. Trading at about 51 times earnings, the stock seems to be priced for perfection. With a valuation like this, the market is pricing in years of robust sales and store-count growth.

But some stocks truly deserve their sky-high valuations. And Costco is one of them.

Like clockwork, the company's latest results once again clearly demonstrated why investors are consistently willing to pay a high valuation for this stock.

Here is a closer look at three reasons Costco deserves its premium valuation.

Image source: The Motley Fool.

1. Robust comparable store sales

For a brick-and-mortar retailer as massive as Costco, generating consistent top-line growth is no easy feat. At least it shouldn't be. But Costco makes it look easy anyway. The company routinely posts impressive comparable-store sales metrics, demonstrating that its core value proposition continues to resonate with consumers.

During the fiscal second quarter, total company comparable sales increased 7.4% year over year. And when stripping out the impacts of gasoline prices and foreign exchange rates, comparable sales grew 6.7%.

Showing the company's steady march of robust comparable-store sales growth, this figure was a slight acceleration from the company's adjusted comparable-store sales growth in fiscal Q1 and was not too far below its fiscal 2025 adjusted comparable sales growth of 7.6%.

2. A massive international runway

While Costco is ubiquitous in the United States, its global footprint still has a long runway for expansion. The company ended the second quarter with 924 warehouses worldwide, but the vast majority of those are concentrated in North America.

Costco's "Other International" segment -- which excludes the U.S. and Canada -- is arguably the most exciting growth lever for the company's physical footprint. During the second quarter, comparable sales for this segment jumped 13% and maintained a robust 7.1% growth rate, even after adjusting for currency and gas. But the real story here is unit growth potential.

The company is currently targeting 28 net new warehouse openings in fiscal 2026 across all of its markets and plans to open more than 30 annually over the long run. With markets across Europe and Asia arguably underpenetrated, Costco has decades of physical expansion ahead of it.

3. Surging digital momentum

Historically, Costco has been viewed as a retail laggard in e-commerce, relying heavily on the in-store treasure-hunt experience to drive volume. But the company has another catalyst -- one that could persist for the next decade or even longer.

The company's digitally enabled comparable sales surged 22.6% in the fiscal Q2. Helping drive these sales, management said in the company's fiscal second-quarter earnings call that e-commerce site traffic jumped 32% and mobile app traffic spiked 45% during the period.

"We have a clear road map for future digital enhancements," noted Chief Financial Officer Gary Millerchip during the fiscal second-quarter earnings call, adding that management believes these investments "will allow us to continue to grow digitally enabled sales at a faster pace than overall sales."

Worth its high valuation?

So, why are investors willing to pay such a steep price?

Investors love the company's consistent store traffic growth, its global expansion runway, and e-commerce momentum. All of these factors are helping drive robust top-line growth and particularly strong bottom-line growth. Indeed, Costco's fiscal second-quarter net income surged 13.8% year over year to top $2 billion.

But valuation still matters.

With the stock trading at such a massive premium, the market has already baked years of flawless execution into the share price. For this reason, I don't believe the stock is a buy at this level. But for investors who already own the stock, selling could be a mistake. Costco is a wonderful company to hold for the long haul.

Daniel Sparks and his clients have 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.