I Can’t Stop Buying COST Stock. Here’s Why.

I keep returning to Costco (NASDAQ:COST | COST Price Prediction) for the same reason a friend of mine keeps eating at the same diner: the value proposition has not budged in twenty years, the regulars keep showing up, and the owner keeps quietly getting richer.

What pulls me back to the buy button is the membership, far more than the warehouses or the rotisserie chicken or the $1.50 hot dog, although those help. 82.1 million paid memberships renewing at 89.7% worldwide, with executive members now accounting for 75.8% of sales. That is a subscription business wearing a retailer’s costume. The fee shows up before the customer buys a single roll of paper towels, and in the most recent quarter that line alone delivered $1.355 billion, up 13.6% year over year. If you handed me a software company growing its high-margin recurring revenue at 13.6% with a 90% renewal rate, I would not blink at the multiple. Costco happens to bolt that engine onto a $275 billion top line.

The data that keeps me honest

Three things, specifically. First, the engine is accelerating, not coasting. Q2 FY2026 produced $69.60 billion in revenue, up 9.2%, with comparable sales of 7.4% and digitally-enabled comps of 22.6%. App visits jumped 63%. The reflexive criticism of Costco for years was that it would lose the e-commerce war by ignoring it. The current quarter is the rebuttal.

Second, the unit economics keep getting better while management keeps absorbing pressure. Gross margin expanded 17 basis points to 11.02% and SG&A improved 13 basis points, even as the company is, by its own filings, eating tariff costs through supplier negotiations rather than passing them to members. Return on equity sits at 29.63% and return on invested capital at 33.55%, which is what happens when you compound thin margins across a fortress of volume. EPS without non-recurring items grew 12.5% annually over ten years. That is the trajectory I am paying for.

Third, the balance sheet lets me sleep. $17.38 billion in cash, with strong coverage ratios versus industry peers. FY2025 free cash flow came in at $7.84 billion, up 18.22%. The company can fund its 942-warehouse target, repurchase shares, and pay its dividend without borrowing a dime.

The macro tailwind I am not ignoring

Now layer in the moment we are actually in. Consumers are watching their wallets. Bureau of Economic Analysis data shows total personal consumption climbing steadily to $21,615.1 billion in February 2026, but gasoline spending has eased to $419.6 billion from a January 2025 peak of $452.2 billion, and food spending has been steady in the $1,513.8 billion to $1,549.1 billion band for fourteen straight months. That is a consumer who is showing up for groceries and trading down on discretionary fluff. With rate cuts still on the table from the Fed, the household budget gets a touch of relief at exactly the moment Costco’s value pitch is loudest. Cost-conscious behavior is the air Costco breathes.

The honest risk

The thing that could hurt me is the price tag. COST trades at a trailing P/E of 52 and a forward P/E of 49. The PEG of 5.52 is not cheap by any sane definition, and the 0.52% dividend yield means I am not getting paid to wait. If sentiment compresses the multiple, I lose money even if the business keeps executing. I take that risk seriously. What keeps it from changing the thesis is that Costco’s earnings have grown into expensive multiples before. Beat rates of seven of the last eight quarters, double-digit net income growth, and a customer base that renews at 90% are exactly the conditions under which a premium multiple stays sticky. The risk is real. The thesis still holds.

Why the buy button stays active

I keep buying because the membership flywheel keeps spinning faster, the consumer environment keeps pushing more people through the door, and the company keeps converting both into cash at a pace that justifies the premium. Costco is a compounder dressed as a warehouse, and as long as 82 million people keep writing it a renewal check every year, you can write one too.