Costco Q1 FY2026 Earnings Beat Analyzed Amid Valuation Concerns

This analysis is based on the Reddit discussion [1] and internal earnings data [0] from Costco’s Q1 fiscal 2026 (announced December 11, 2025) earnings report. The report revealed strong financial performance, with revenue of $67.31B (8.2% YoY) beating expectations of $67.14B, and EPS of $4.50 (up from $4.04 YoY) exceeding the $4.27 consensus estimate. Global comparable sales rose 6.4% (U.S. 5.9%), while digital sales surged 20.5% YoY—driven by value-seeking consumers, younger members, and 2024 membership fee hikes in the U.S. and Canada [0].

Market reaction was modest: the stock dipped less than 1% in after-hours trading but closed up 1.15% to $884.46 the next day [0]. A key point of discussion from the Reddit thread was Costco’s valuation, with users arguing its P/E ratio (TTM 48.62) is disproportionately high for a retail company, comparing it to tech firm valuations. Some users noted they had previously called Costco overvalued at lower price points ($600, $800, $1000) but conceded valuation dynamics may have changed, possibly due to widespread fractional share availability. Others normalized high P/E ratios for major retailers like Costco and Walmart (P/E 40.40) [1].

1. Valuation-Fundamentals Disconnect in Retail
   : Despite traditional retail industry norms, Costco’s high P/E (48.62 TTM) is supported by strong fundamentals: a 29.61% return on equity (ROE) and steady membership fee revenue ($1.33B YoY, up from $1.17B), which provides recurring income not typical of standard retailers [0].
2. Analyst Consensus vs. Retail Investor Sentiment
   : While Reddit users express valuation concerns, analyst consensus remains bullish: 62.5% rate Costco a “Buy” with a consensus target price of $1029, representing a 16.3% upside from the post-announcement close [0].
3. Digital Sales and Membership Strategy as Growth Catalysts
   : The 20.5% YoY digital sales growth and expanding younger member base (146 million members, up 5% YoY) highlight the success of Costco’s omnichannel and membership-focused strategy, which differentiates it from peers [0].

• Risks
  :
  • Elevated valuation relative to retail peers (P/E 48.62 vs. Walmart’s 40.40) [0].
  • Macroeconomic uncertainty that could shift consumer spending habits away from discretionary items sold by Costco [0].
  • Tariff-related risks (Costco has a pending lawsuit against former tariff policies) [0].
  • Potential decline in member renewal rates, particularly for digital sign-ups [0].
• Opportunities
  :
  • Continued demand from value-seeking consumers amid economic volatility [0].
  • Further growth in digital sales through improved e-commerce infrastructure [0].
  • Expansion of younger membership base, which could drive long-term revenue growth [0].
  • Benefits from 2024 membership fee hikes, which may boost recurring revenue in future quarters [0].

Costco’s Q1 FY2026 earnings exceeded Wall Street expectations across sales, EPS, and comparable sales, with strong growth in digital sales and membership revenue. The company’s stock showed modest but positive movement post-announcement. While retail investors (via Reddit) question its high valuation relative to the retail sector, analysts maintain a bullish outlook, citing strong fundamentals and growth drivers. Key considerations include the balance between valuation concerns and the company’s unique membership and omnichannel strategies, alongside macroeconomic and operational risks.