What Are Costco Stock Bulls Not Worried About

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Costco Wholesale (COST) bulls have shown little worry lately: the stock rose 11.3% over the past month while the S&P 500 fell 3.6%. The price appears to assume Costco keeps earning its widest profit margin in years. For that to hold, Costco has to absorb rising costs on oil-related goods and on electronics that use memory chips, and its margin has to stand without help from one-off tariff refunds. So what costs is Costco up against?

Costco Faces Rising Costs That Are Hard To Predict

Costco faces rising costs on goods tied to oil and on the memory inside the electronics it sells. On its September 24, 2026 call, management said it finds it "difficult to predict what's going to happen with inflation." Management pointed to the conflict in the Middle East and to uncertainty over where tariffs land.

These costs already showed up in fiscal Q4 2026. Costco booked a $152 million charge for the higher cost of the goods it holds, compared with $43 million a year earlier. Management said that charge ran well above the quarter's own inflation, because the year-end quarter carries the catch-up for the whole fiscal year. Management also named memory costs in consumer electronics and items such as gas, motor oil and resins as the biggest drivers.

So far, Costco has kept its operating margin: 4.0% in fiscal Q4 2026, against 3.9% in fiscal Q4 2025. Its gross margin on merchandise sales did slip, to 11.02% in fiscal Q4 2026 from 11.13% a year earlier.

How Much Of Costco's Business Do Rising Costs Reach?

The sharpest rises sit in a few corners of Costco, but all $303 billion of its sales over the twelve months to August 2026 run on a single thin margin. Management said non-foods inflation rose in fiscal Q4, mostly from memory costs, gas and petroleum-based items, while food inflation stayed in line with earlier quarters.

Those sales grew 10.1% from a year earlier. Costco kept 3.9% of them as operating profit, compared with 19.0% for the S&P 500. That is Costco's widest twelve-month margin at any quarter end in data going back to fiscal 2017.

That margin is mostly Costco's own. Net of the price cuts Costco funded with them, the tariff refunds added 9 basis points to its fiscal Q4 gross margin, management said. Costco received its initial tariff refunds in that quarter. Without that help, fiscal Q4 net income still rose 12.3% from a year earlier, on management's own measure.

Buyers pay 51.3 times Costco's earnings, compared with 22.3 for the S&P 500. That multiple has ranged from 26.8 to 56.0 at quarter ends since fiscal 2017, so today's sits near the top. The shares also ended November 10 just 2.3% below their highest close of the past year. There is little room in that price for the margin to slip.

How Worried Should Costco Holders Be?

Enough to watch the margin closely, though not enough for alarm. The cost rise is genuine, yet it has barely shown up in Costco's operating margin so far. The price appears to assume it stays that way.

The latest margin cannot show the cost increases still on their way. Management said it sees vendor price changes from 30 days to more than 90 days ahead. Costco is still collecting tariff refunds: as of its September 24 call, it had already received about as much in fiscal Q1 2027 as it did in Q4, and it plans to spend most of them on better value for members.

Holders have paid for an inflation scare before. In the 2022 inflation shock, Costco stock fell 26.3% from the shock's first close to its low, compared with 25.4% for the S&P 500.

Costco has kept its operating margin while costs rose, and little of that margin comes from the tariff refunds so far. Its ability to preserve that margin as costs climb is less settled. The number to watch is Costco's gross margin without the tariff refunds. Management has said it will keep showing this figure separately in its fiscal Q1 2027 report, expected in December 2026.

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