Costco Wholesale (NASDAQ:COST) shares were nearly flat on Monday, with the company's market capitalization hovering around $422.8 billion. To reach the coveted $1 trillion valuation, the stock would need to surge approximately 136.5% from its current level near $951 per share. This ambitious target hinges on the retailer maintaining its premium valuation multiple, which currently stands at 47.9 times trailing earnings.
With roughly 444.43 million diluted shares outstanding, a $1 trillion market cap would translate to a share price of about $2,250. At the current price-to-earnings ratio, that would require annual earnings per share (EPS) of approximately $47.00. Costco's trailing twelve-month EPS is $19.88, meaning significant profit growth is necessary to justify the valuation.
If Costco can achieve a 10% annual EPS growth rate, it would take about nine years to reach the $1 trillion mark, assuming the P/E multiple remains constant. However, if the multiple contracts, the timeline extends considerably. For context, Walmart (NYSE:WMT) currently trades at 38.8 times earnings, while BJ's Wholesale (NYSE:BJ) is valued at 22.5 times. Costco's premium is 23% above Walmart and 113% higher than BJ's.
Valuation Comparison
The following table illustrates the valuation gap among major warehouse retailers, based on midday data:
- Costco: Share price $951.28, market cap $422.8B, trailing P/E 47.9x, down 0.1%
- Walmart: Share price $110.45, market cap $883.5B, trailing P/E 38.8x, fell 0.7%
- BJ's Wholesale: Share price $97.69, market cap $12.6B, trailing P/E 22.5x, off 0.1%
Walmart briefly surpassed the $1 trillion mark in February before retreating, and its current market cap is around $883 billion. This shows that reaching the trillion-dollar milestone is possible but not guaranteed to stick.
Historical Performance
Over the past decade, Costco's stock has appreciated 459.6% as of July 17. The P/E ratio has expanded from 37 to 47, while EPS grew approximately 341%, averaging a 16% annual compound growth rate. The multiple expansion alone contributed about 27% to the stock's price appreciation, indicating that valuation growth has been a significant driver.
Nasdaq, Inc. (NASDAQ:NDAQ) recently described Costco as functioning "more like a subscription business than a retailer," citing renewal rates above 90% and membership fees accounting for roughly three-quarters of operating income. While this analysis is based on estimates, Costco's membership fees of $4.06 billion over 36 weeks represent 51.5% of its $7.88 billion operating income before cost allocations.
Recent Sales Performance
Costco's operations remain robust. Net sales for June climbed 10.6%, with adjusted comparable sales up 7.0%, an improvement from the fiscal third quarter's 6.6%. Adjusted digital sales also rose 21.5%. The gap between reported and adjusted figures reflects the impact of currency fluctuations and gasoline prices, which CFO Gary Millerchip noted had a "major impact" on the quarter.
Bernstein analyst Zhihan Ma expects Costco to generate 6-7% comparable sales growth excluding gas and FX, and June's performance hit the upper end of that range. The company is scheduled to report July sales on Wednesday, August 5, at 1:15 p.m. PT, with investors focused on whether the momentum continues.
Path to Trillion
Using different terminal P/E assumptions, the time to reach a $1 trillion valuation varies:
- Current Costco ratio (47.9x): EPS needed $47.09, years at 10% growth: 9.0
- Walmart ratio (38.8x): EPS needed $58.11, years: 11.2
- Costco's 10-year median (37.0x): EPS needed $60.81, years: 11.7
- BJ's ratio (22.5x): EPS needed $100.20, years: 17.0
These calculations are based on Monday's market data, the latest diluted share count, and Costco's stated 10-year median valuation. If July sales fall short of the 6-7% growth band, it could challenge the premium valuation.
Risks and Outlook
Key risks include delays in membership renewals, rising commodity prices, and reduced consumer spending, all of which could pressure EPS growth. International expansion also introduces execution challenges. A contraction in the P/E multiple could significantly prolong the journey to $1 trillion.
Costco has the potential to reach the trillion-dollar mark without altering its business model, but future gains will need to be increasingly driven by earnings rather than multiple expansion. The upcoming July sales report will provide the next key data point for investors to assess.
