COSTCO WHOLESALE CORP /NEW (COST) Stock Analysis
COSTCO WHOLESALE CORP /NEW (COST) Stock Analysis
Overall Grade: F (Concerning)
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COSTCO WHOLESALE CORP /NEW faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 23.4% | Above industry average |
| FCF Margin | 3.2% | Cash flow pressure |
| Debt/Equity | 0.2x | Conservative leverage |
Investment Thesis: Strong return on invested capital of 23.4% suggests durable competitive advantages and efficient capital allocation.
What is COSTCO WHOLESALE CORP /NEW's Profitability and ROIC?
COSTCO WHOLESALE CORP /NEW generates strong returns on invested capital at 23.4%, indicating efficient capital allocation and competitive advantages. Gross margin of 12.9% with operating margin at 3.8% reflects the company's moderate market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 23.4% | Excellent | Strong capital efficiency |
| Return on Equity (ROE) | 30.4% | Excellent | Efficient use of shareholder equity |
| Gross Margin | 12.9% | Warning | Competitive pricing environment |
| Operating Margin | 3.8% | Warning | Moderate operational efficiency |
How Strong is COSTCO WHOLESALE CORP /NEW's Cash Flow Quality?
COSTCO WHOLESALE CORP /NEW generated $9.0B in free cash flow over the trailing twelve months, representing a 3.2% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.8x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 3.2% | Warning | Thin cash margins |
| Free Cash Flow (TTM) | $9.0B | Good | Positive cash generation |
| OCF/Net Income | 1.8x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is COSTCO WHOLESALE CORP /NEW's Financial Health?
COSTCO WHOLESALE CORP /NEW maintains a net cash position of $11.4B, providing significant financial flexibility.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Debt to Equity | 0.2x | Excellent | Conservative capital structure |
| Net Cash Position | $11.4B | Excellent | Net cash positive |
Is COSTCO WHOLESALE CORP /NEW Stock Overvalued or Undervalued?
COSTCO WHOLESALE CORP /NEW trades at a P/E of 48.0x, representing a premium to the sector median of N/A. Free cash flow yield of 2.3% reflects market expectations for growth.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 48.0x | Adequate | Premium valuation |
| EV/Sales | 1.5x | Excellent | Attractive revenue multiple |
| FCF Yield | 2.3% | Adequate | Lower cash yield |
| Dividend Yield | 0.6% | Adequate | Growth focus over income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 23.4% | Top 25% | 2.4x above |
| Free Cash Flow Margin | 3.2% | Top 50% | 1.0x at |
| Gross Margin | 12.9% | Bottom 25% | 0.3x below |
| Operating Margin | 3.8% | Bottom 50% | 0.8x below |
| Return on Equity (ROE) | 30.4% | Top 25% | 2.5x above |
| P/E Ratio | 48.0x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 23.4% (Excellent - Top 25% of sector (median: 9.8%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 3.2% (Warning - Top 50% of sector (median: 3.2%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 12.9% (Warning - Bottom 25% of sector (median: 40.9%))
Debt to Equity Ratio
Total debt divided by shareholders' equity. Lower ratios indicate more conservative financing and reduced financial risk.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 0.3x | Conservative leverage, strong balance sheet |
| Good | 0.3x - 0.7x | Moderate leverage, healthy financial position |
| Adequate | 0.7x - 1.5x | Elevated leverage, monitor closely |
| Warning | 1.5x - 3.0x | High leverage, increased financial risk |
| Red flag | > 3.0x | Excessive leverage, potential distress risk |
Current: 18.9% (Excellent)
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 48.0x (Adequate)
Free Cash Flow Yield
Free cash flow per share divided by stock price. Higher FCF yield indicates better cash return relative to valuation.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 8% | High cash return, potential value opportunity |
| Good | 5% - 8% | Solid cash yield |
| Adequate | 3% - 5% | Moderate cash return |
| Warning | 1% - 3% | Low cash yield, growth expectations |
| Red flag | < 1% | Minimal cash return to shareholders |
Current: 2.3% (Warning)
Frequently Asked Questions
Q: What is COSTCO WHOLESALE CORP /NEW's Return on Invested Capital (ROIC)?
COSTCO WHOLESALE CORP /NEW (COST) has a trailing twelve-month Return on Invested Capital (ROIC) of 23.4%. This compares above the sector median of 9.8%. An ROIC above 20% indicates exceptional capital efficiency and strong competitive advantages.
Q: What is COSTCO WHOLESALE CORP /NEW's Free Cash Flow Margin?
COSTCO WHOLESALE CORP /NEW (COST) has a free cash flow margin of 3.2%, generating $9.0 billion in free cash flow over the trailing twelve months. A thin FCF margin may indicate heavy reinvestment or operational challenges.
Q: Is COSTCO WHOLESALE CORP /NEW stock overvalued or undervalued?
COSTCO WHOLESALE CORP /NEW (COST) trades at a P/E ratio of 48.0x, which is above the sector median of N/A. The EV/Sales multiple is 1.5x. Free cash flow yield is 2.3%, reflecting growth expectations priced into the stock.
Q: Does COSTCO WHOLESALE CORP /NEW pay a dividend?
COSTCO WHOLESALE CORP /NEW (COST) currently pays a dividend yield of 0.6%. Including share buybacks, the total shareholder yield is 0.8%. The relatively low yield suggests the company prioritizes growth reinvestment over income distribution.
Q: What is COSTCO WHOLESALE CORP /NEW's revenue and earnings growth?
COSTCO WHOLESALE CORP /NEW (COST) grew revenue by 8.3% year-over-year. Earnings per share increased by 9.6% compared to the prior year. Modest growth indicates a mature business with stable demand.
Q: Is COSTCO WHOLESALE CORP /NEW buying back stock?
COSTCO WHOLESALE CORP /NEW (COST) repurchased $906.0 million of stock over the trailing twelve months. This represents a buyback yield of 0.2%.
Q: How does COSTCO WHOLESALE CORP /NEW compare to competitors in Consumer Discretionary?
Compared to other companies in Consumer Discretionary, COSTCO WHOLESALE CORP /NEW (COST) shows: ROIC of 23.4% is above the sector median of 9.8% (Top 24%). FCF margin of 3.2% trails the sector median of 3.2% (Top 50% of sector). Gross margin at 12.9% is 28 percentage points lower than sector peers. These rankings are based on MetricDuck's analysis of all Consumer Discretionary companies with available SEC filings.
Q: What warning signs should I watch for with COSTCO WHOLESALE CORP /NEW?
Investors in COSTCO WHOLESALE CORP /NEW (COST) should monitor these potential warning signs: 1) FCF margin is thin at 3.2%, leaving limited buffer for economic downturns. Regular monitoring of SEC filings and quarterly trends is recommended.
Data Source: Data sourced from 10-Q filed 2025-12-17. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.