We came across a bullish thesis on Costco Wholesale Corporation (COST) on Sanjiv’s Substack. In this article, we will summarize the bulls’ thesis on COST. Costco Wholesale Corporation (COST)’s share was trading at $1,051.69 as of 4th June. COST’s trailing and forward P/E were 59.65 and 51.81 respectively according to Yahoo Finance.
A grocery store employee stocking shelves with fresh fruits and vegetables.
Costco’s Q3 FY2025 results reaffirm its status as a uniquely disciplined and predictable retail compounder. With a decade-long revenue CAGR of 9%, decomposed into 2.64% store growth and 6.13% comparable sales growth, the company continues to execute on its “12/9/3” margin model—anchored in capped gross margins and low opex to deliver relentless value to members. In Q3, sales rose 8% y/y to $63.2bn, with net income up 13.2% to $1.90bn.
Membership income—65% of net profits—remains central to Costco’s strategy, with renewal rates staying above 90% despite recent dilution from promotional cohorts. Even amid broad inflationary and tariff headwinds, Costco’s low-SKU model and agile sourcing—including pulling forward seasonal imports and shifting production geographically—allow it to avoid widespread price hikes, unlike peers such as Walmart or Target. E-commerce (+14.8%) and Kirkland Signature (+50 bps sales mix gain) reinforce Costco’s brand value and adaptability.
Capex remains disciplined (~$5bn expected for FY25), aligned with its historic 7.8% CAGR, keeping capital intensity in check. The high-traffic store challenge is being addressed through new openings, tech-enabled checkout, and expanded gas station hours. Yet, despite its operational excellence and 17.5% CAGR shareholder return over 23 years, the stock trades at a two-year forward P/E of 52.8x and FCF yield of just 1.9%—too rich for the implied 4–6% long-term return.
“While we continue to respect the business and hold a 1% legacy position, we believe the current valuation offers little margin of safety, and do not plan to add to the position at these levels.” – Sanjiv.
Previously we have covered a bullish thesis on Costco Wholesale Corporation (COST) by FluentInQuality on Substack in March 2025, which aligns with Sanjiv’s June 2025 analysis highlighting Costco’s consistent execution, member-first model, and strategic discipline. Since March, the stock has appreciated by 0.4%. Both investors admire Costco as a high-quality compounder, though Sanjiv expresses caution on valuation, unlike FluentInQuality, who emphasizes Costco’s long-term compounding potential despite its premium multiple.