Worried about Costco’s long-term business? You will want to see this statistic.

On a typical Friday night in the 1990s, large numbers of US families flocked to their local Blockbuster to get weekend entertainment by renting a movie or video game cartridge. The chain has been a dominant force in its segment of the entertainment space. But as time went on, its management failed to respond effectively to increased competition from companies that first offered DVD rentals by mail and then video-on-demand streaming. It is clear how it turned out.

In short, the business models that work best today will not thrive forever. And when you think about it, this can be especially problematic for long-term investors. Warren Buffett often said, “If you wouldn’t consider owning a stock for 10 years, don’t even consider owning it for 10 minutes.” But so much can change in 10 years — an entire business model can become irrelevant in that amount of time.

Retail chain Costco Wholesale (COST 0.13%) is one of the hottest companies on the stock market right now, and understandably so. Over the past 10 years, it has doubled its revenue as it opened new locations and gained new members. Profits grew with strong operational efficiency, and this led to huge gains for the stock.

COST data by YCharts.

But how can investors predict what the next 10 years hold for the warehouse chain? How can those buying Costco stock today have confidence in how this business will perform a decade down the road? Well, management only provided one metric that is extremely promising when thinking about the relevance of Costco’s business over the long term.

The must-see statistic for buy-and-hold investors

Costco makes most of its profit from selling memberships. Consumers must pay annual membership fees to shop in its expansive warehouse-style stores, but are rewarded with low prices. The company has nearly 900 locations worldwide and nearly 137 million members.

According to Costco management, it added about 9 million new cardholders during the 2024 fiscal year, which ended Sept. 1. But here’s the important statistic for long-term investors: Of the 9 million new members, about half were under 40. Furthermore, the average age of Costco members has steadily declined since the start of the COVID-19 pandemic.

Costco’s member renewal rate is over 90% and has been for a long time. Therefore, it is reasonable to assume that many of these younger Costco members will remain members for many years.

It should be immediately obvious why this is important information. Buy-and-hold Costco investors try to predict the future of the business. With the chain’s customer base getting younger and renewal rates remaining strong, I’d say Costco’s business looks pretty healthy when it comes to long-term relevance.

What does this mean?

It’s important to note that a business and its stock are related, but not quite the same. A business may be poised for long-term endurance, but that doesn’t necessarily mean investors will enjoy solid returns. Therefore, there is still more information needed when building an investment case for Costco stock.

One thing investors need to keep in mind today is that Costco is trading at more than 50 times its earnings — that’s pretty expensive for a low-growth business. In fact, its shares haven’t been this expensive since the dot-com bubble more than 20 years ago.

Data on COST PE report by YCharts.

That metric would lead me to believe that Costco stock might be somewhat overvalued right now. As a result, I wouldn’t be surprised if the stock goes lower over the next year or so, which would give investors a more attractive entry point.

But take this comment with a grain of salt. Valuation is only one part of investing, and it’s not even the most important part. Identifying businesses that can thrive and grow for 10 years or even more is a much more important exercise.

Costco’s customer base is getting younger and its renewal rates remain strong. If you’re an investor who might have been worried about the long-term future of this retail chain, that information should put your mind at ease.