Prediction: Costco will be a $500 billion stock by 2026

Today there are only seven trillion dollars of publicly traded stocks: Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta platformsand Berkshire Hathaway. There are 10 other stocks that have a market cap of over half a billion. Just as Berkshire Hathaway recently became a trillion dollar stock, these other 10 are excellent stocks that will likely join the club at some point in the future.

Then there are a few more right behind them. Costco Wholesale (COST -0.24%) ranks 23rd on the list of the most valuable publicly traded companies, with a market capitalization of $389 billion. Costco’s stock is up 33% this year and continues to beat the market despite its lofty valuation. It should continue to beat the market over the long term and is likely to join the half trillion dollar market cap club by 2026.

What exactly happens at Costco

Investors love Costco stock, and for good reason. It is reliable for growth in almost any circumstance, including recession and inflation. It is backed by a strong cash position, excellent return on capital and robust profitability.

Start 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 US retailers to get great prices from suppliers. It operates simple warehouses and sells in bulk, often on pallets, to pass on bargains with small markups. Members have to pay an annual fee that recently increased to $65 for the basic version, but enough of them believe they’re saving to result in a global renewal rate of more than 90%, with 93% in the US 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 could be subdued enough for the Federal Reserve to cut interest rates later this month, and lower inflation with lower rates could lead to a stimulating economy. This 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’s stock, its valuation, which is at record highs, could finally come crashing down. But instead, a frenzy of bull market enthusiasts who will come out of the woodwork if interest rates are cut could keep it high. If this happens, it may drop at some point.

However, one of the great things about Costco is its consistency in the face of changing trends and the global economy. Whether interest rate changes lead to gains or valuation changes lead to losses, or whatever happens, Costco stock should rise over time.

Can Costco Stock Reach $500 Billion?

A market cap of $500 billion implies a gain of 29% from the current price. Costco shares have 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 overdue, and Costco’s stock should end the year with a big win.

A market cap of $500 billion implies net income of $9.26 billion, or 29% growth, at the current price-to-earnings (P/E) ratio of 54. Trailing 12-month net income is now 7.17 billion dollars. Costco’s net income doesn’t typically grow that much annually, which is why I don’t think it can hit that mark next year without a much higher valuation, which seems unlikely. But given a little more time and a valuation bump that could come with bull market excitement, Costco could join that club in 2026.