If You Buy Costco Stock With $10,000 Today, I Predict It Could Be Worth $13,400 in 5 Years

Through its 928 global warehouses, Costco (NASDAQ: COST) sells a vast array of merchandise at extremely low prices. This is a boring business model. However, it has rewarded long-term investors.

The company's share price has climbed 112% over the past five years (as of Aug. 26). It has crushed the overall market. It's hard for investors not to be bullish, with an eye toward the future, even though it's time for a reality check.

If you buy this retail stock with $10,000 today, I predict it could be worth $13,400 in five years. Here's why.

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Higher profits introduce a favorable tailwind

The most important catalyst that will propel this stock is the company's profit trends. Over the past five years, Costco's diluted earnings per share (EPS) rose at a compound annual rate of 12.4%. According to consensus analyst estimates, this metric will increase at a yearly clip of 11.1% between fiscal 2025 and fiscal 2028.

Given that Costco is a mature enterprise these days, I think the bottom line will grow at a compound annual rate of 10% from fiscal 2026 through fiscal 2031. This seems like a realistic outcome, as it marks a deceleration from the prior half-decade.

In my view, there is minimal risk to this outlook actually playing out. One main reason why is that Costco's same-store sales (SSS) continue to rise with each passing fiscal quarter and year. In July, SSS climbed a strong 8.9%, despite the uncertain environment we're in.

The business is also opening new warehouses. Management plans to expand the physical footprint by 30 or more net new stores each year in the future, with ample opportunity both in the U.S. and abroad.

And Costco's membership base, now at 82.9 million households, is only getting bigger. Consumers have come to appreciate the value proposition. This supports Costco's membership pricing power.

What about the valuation?

Earnings growth is certainly an important catalyst that investors should continue to monitor. Costco's consistent profit gains are a key part of the investment thesis, especially as it opens new warehouses, signs up more members, and grows SSS.

However, investors should never ignore a stock's valuation. This data point helps assess the overall market's perception of a particular business. Paying too high a price can be detrimental to prospective returns.

Based on Costco's price-to-earnings (P/E) ratio of 48.1, investors seem to view this company in a very favorable light. This is true even though the multiple has contracted 24% from a recent high of 63.2 in early 2025. In the past decade, the P/E ratio has averaged 39.8.

The market appreciates this business as a safe haven, as the stock gives investors peace of mind during adverse times. Costco continues to perform well financially, regardless of the macro picture. I believe this has a huge influence on the valuation, as the company isn't a fast grower anymore, which is typically what commands a premium P/E ratio.

But I believe it's rational to expect that Costco's P/E multiple of 48.1 will steadily start to come down over time. Five years from now, it wouldn't be surprising to see the ratio drop closer to the trailing-10-year average of 40. This introduces a 17% headwind to the stock's performance.

As alluded to earlier, Costco's diluted EPS is projected to be $29.33 in fiscal 2031, 61% higher than the fiscal 2026 forecast. Factoring in a 17% reduction in valuation, Costco shares will trade at $1,281 in five years. If the S&P 500 index repeats its trailing five-year performance, the retail stock will drastically underperform.

I have more confidence that Costco's profits will trend as expected. It's anyone's guess what the valuation will be. If investors continue to admire this business as they have historically, shares can certainly keep up their track record of beating the market.

Neil Patel has 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.