Prediction: Costco Will Be a $500 Billion Stock by 2026
There are only seven trillion-dollar publicly traded stocks today: Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta Platforms, and Berkshire Hathaway. There are another 10 stocks that have a market value of more than half a billion. Just like Berkshire Hathaway only recently became a trillion-dollar stock, these other 10 are excellent stocks that are likely to join the club at some point in the future.
Then there are a few more just behind those. Costco Wholesale (NASDAQ: COST) comes in at No. 23 on the list of most valuable publicly traded companies, with a market cap of $389 billion. Costco stock is up 33% this year, and it keeps beating the market despite its high valuation. It should continue to beat the market over the long term, and it's likely to join the half-a-trillion-dollar market cap club by 2026.
What's going right at Costco
Investors love Costco stock, and for good reason. It's reliable for growth under almost any circumstances, including recessions and inflation. It's backed up by a strong cash position, excellent return on capital, and robust profitability.
It starts with the company's membership model. Customers love to shop at its huge warehouses, where they get the best deals on many products. Costco uses its leverage as one of the largest retailers in the U.S. to get great prices from suppliers. It operates bare-bones warehouses and sells in bulk, often on pallets, to pass on the bargains with low markups. Members have to pay an annual fee that recently went up to $65 for the basic version, but enough of them think they make that up in savings to result in a global renewal rate of higher than 90%, with 93% in the U.S. and Canada. It also attracts millions of new members annually.
What could, but shouldn't, change things
A lot can happen between now and 2026 that could affect Costco and its stock. Inflation looks like it might be tamed enough for the Federal Reserve to lower interest rates later this month, and lower inflation with lower rates could lead to a stimulated economy. That could trickle down to retailers like Costco as people spend more freely, especially on more expensive items.
If sales and profits grow faster than Costco stock, its valuation, which is at record-high levels, could finally come down to earth. But instead, a frenzy of bull-market enthusiasts who will come out of the woodwork if interest rates are cut could keep it elevated. If that happens, it's likely to drop at some point.
However, one of the wonderful features of Costco is its consistency in the face of changing trends and global economics. Whether interest rate changes lead to gains or valuation changes lead to losses, or anything else happens, Costco stock should grow over time.
Can Costco stock reach $500 billion?
A market cap of $500 billion implies a 29% gain from today's price. Costco stock has already surpassed that gain so far this year. Although its most recent quarterly report is for the fiscal third quarter (ended May 12), it has already released monthly reports for June, July, and August, which were similarly outstanding, and Costco stock should end this year with a large gain.
A $500 billion market cap implies net income of $9.26 billion, or a 29% increase, at the current price-to-earnings (P/E) ratio of 54. Trailing 12-month net income right now is $7.17 billion. Costco's net income doesn't usually increase that much annually, which is why I don't think it can hit this milestone next year without a much higher valuation, which seems unlikely. But given a bit more time, and some increase to valuation that could come with bull market enthusiasm, Costco could join this club in 2026.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
