Tariff-Related Lawsuits Could Hurt Costco Stock, but the Reason Why May Surprise You

One of the more surprising victims of the recent tariffs is Costco (NASDAQ: COST). The company said it fought them as much as it could and did not pass on their full cost to consumers, and even sued the Trump administration to have them refunded.

However, since the Supreme Court struck down the tariffs, at least one customer has turned against Costco, suing the company in the hopes of obtaining tariff refunds.

So far, Costco's stock price has not moved significantly since that lawsuit was filed. Nonetheless, these actions could hurt the retail stock for reasons investors may not expect. Here's why.

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How Costco is vulnerable

The problem for shareholders is that Costco appears priced for perfection.

Since its IPO in 1985, Costco has won investors over by reporting solid, reasonably consistent results quarter after quarter. This includes periods such as the financial crisis, when Costco grew its revenue every year other than 2009.

It has also stunned many investors by replicating its business model abroad, while peers like Walmart and Home Depot struggled.

With that, the stock has yielded returns of almost 3,200% since the beginning of 2000, when including dividends, around five times the total return of the S&P 500.

COST Total Return Level data by YCharts

However, that has caused its P/E ratio to reach 51. That falls short of last year's 60 earnings multiple but is comparable to the levels reached at the height of the 2000 bull market.

Moreover, even though sales continue to sizzle, they're probably also beyond a level that Costco's current financials can support. Its revenue for the first half of fiscal 2026 (ended Feb. 25) was $137 billion, a 9% yearly increase. With that, the $4 billion earned in profit in the first two quarters of fiscal 2026 grew by 13%. Those numbers are a testament to the company's consistency, but if it were almost any other brick-and-mortar retailer, investors would likely balk at paying 51 times earnings for 13% annual profit growth.

Furthermore, the tariff refund will almost certainly hit profits in the near term. When one also considers the possible effects of the lawsuit, Costco faces a higher level of uncertainty. The stock's long-term investment thesis is unlikely to change over this issue, but with the near-term effects on the company unclear, investors may begin to rethink Costco's current valuation.

Consider skipping Costco shares (for now)

Amid this tariff-related uncertainty, investors should probably refrain from buying more Costco shares for now.

Indeed, Costco should continue to grow as a company, and that should lead to continued growth for the stock, at least longer term.

Nonetheless, with the possible effects of tariff refunds bringing uncertainty, investors could start to question the stock's lofty valuation. Until Costco resolves this issue, investors should probably not consider paying 51 times earnings for this stock.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Home Depot, and Walmart. The Motley Fool has a disclosure policy.