In short: Referenced only — the one after-close print he will watch, as a read on the richer consumer. "The only company I'm going to be looking at is Costco… specifically because of its membership model… the average Costco consumer is richer… than your Walmart or Dollar General consumer. But if Costco talks about any signs of slowdown, that would be a red flag. I doubt they will."
Full passage: premium transcript (PDF).
In short: Very resilient: "Agents can compare prices. They cannot duplicate the bundle" — procurement scale, limited assortment, private label, membership economics. An agent may even route recurring baskets to Costco by recognizing durable value; "Costco is more of a supplier than a search interface."
An agent can compare prices, but it can't copy what makes Costco cheap: its buying power, small selection, own-brand quality and membership model. A price-checking agent may even send more regular shopping to Costco because it can see the value. Costco is a supplier, not a comparison website, so it is resilient.
39:44And that's where these companies come in. The reason that the ratings are so important is not because they could find that information somewhere else. It's because of the authority and trust and brand recognition behind them. We also have Costco. Agents can compare prices. They cannot duplicate the bundle. Costco's value is in procurement scale, limited assortment, private label quality, membership economics, trusted pricing, and physical operating model.
In short: An inflation anecdote, not a stock call: "Costco doubled their price for their Kirkland motor oil," anticipating hoarding, "and so they're rationing it out" — the late-'70s buy-before-it-rises psychology, which he thinks is behind the inventory build lifting GDPNow.
2:59And I heard a story yesterday that kind of set a light bulb off and that is that Costco doubled their price for their Kirkland motor oil. And when they doubled the price, I think that they feared or perhaps anticipated that when the price doubled, you might get hoarding. When prices go up, people think maybe they're going to go up again.
In short: $79k (+$45k, 311%), "one of my worst value positions… but I can't bring myself to sell." August sales +9.9%, digital +18%, a co-branded Medicare plan with SCAN. 12% × 33× = 5.47%, the lowest — "Costco is not a buy today"; needs ≥10% before he adds.
Costco keeps growing steadily (August sales up almost 10%) and is even moving into Medicare plans, but investors pay a very high price for its safety. His math gives only about 5.5% a year from here, the lowest in his portfolio, so he won't buy more until the expected return is at least 10% — though he can't bring himself to sell one of his best-ever investments.
In short: A target cut that the owner shrugs off, and a relative-preference call that goes the other way. The news: "the Costco target today gets cut to $1,144 from $1,194… 50 points lower, outperform though still, but people look at the valuation of Costco, have a problem with it." Simpson owns it and starts by defending the multiple — "you have to be used to paying a very high multiple for Costco, similarly to Walmart" — and dismisses the cut on arithmetic: "a $50 price drop — the stock's still got $100 to go from where it is now, and I think 50 dollars on an $1,100 stock is somewhat meaningless." But he does not defend it against its peer: "if I had to pick one of the two, I would go with Walmart. At the moment we have a larger allocation to Walmart than we do with Costco." Baruch's Walmart case names Sam's Club as "a legit competitor to Costco with same day delivery at a better multiple."
An analyst trimmed the price target on Costco by $50, to $1,144. Simpson owns it and dismisses the cut on arithmetic — $50 on an $1,100 stock, with the target still $100 above the price, is not information.
What he does concede is the relative call. Asked to choose between Costco and Walmart he picks Walmart, and says he already holds more of it. Both are expensive membership-and-scale retailers, and he is not arguing the multiple is wrong; he is saying that if you are paying a high multiple for scale, the cheaper of the two is the better expression. Baruch reaches the same conclusion from the other side, arguing Sam's Club now matches Costco's same-day delivery at a lower valuation.
In short: Buy target $600 from $969 — a deliberate 38% below, versus 18–25% for everything else, and the one he rates "very unlikely" ("it does not typically drop nearly 40%"). One of his oldest positions ($83k, +$50k): "I basically started buying Costco day one when I started investing." The reason the target is set so far away is stated plainly: "Costco's overvalued. It is an overvalued company that I continue to hold. Anytime it pays me the huge special dividends, I put that capital into other positions." Even at $600, 9.3% EPS growth and a 31 multiple (against ~50 today) only returns 10.6% — "a decent return… but still not amazing."
Costco is the most honest entry on the board, because the number gives away the view. Every other holding gets a buy target 18–25% below the market price. Costco's is 38% below — $600 against a $969 price — and he rates the odds of getting there as very low, since the stock's typical drawdowns are 5–20% and short-lived.
The reason isn't that he dislikes the company. It's one of his oldest holdings, bought "day one when I started investing," and it has been one of the best-returning stocks in the market. The reason is price: "Costco's overvalued. It is an overvalued company that I continue to hold." That's an unusually direct admission — holding something you think is expensive — and he pairs it with what he actually does about it: the large special dividends Costco pays get redeployed into other positions rather than back into the stock.
The arithmetic backs the reluctance. Costco trades at roughly 50 times earnings. Even assuming it settles at a still-generous 31 times, with earnings growing 9.3% a year, buying at $600 would produce only about 10.6% annually — the second-weakest projected return in the portfolio. So the far-away target is not pessimism about the business; it's the price at which a great but richly valued company would finally offer a return worth new money.
16:50I didn't know as much back then, but I knew Costco is a really good company. And the investment test turned out on a compounded growth rate. Costco has been one of the best returning stocks in the market. But it currently sits at an $83,000 position with 50,000 of that being gains. This one here is a little bit tricky because Costco currently trades at $969 per share, but the buy target that I have for this one is all the way down. It's way down.
In short: Carlson: held "no matter how high the valuation has gotten" — "a stock that I really feel like I could pass down to my children"; the 40-year-visibility bar Zeta does not (yet) meet.
In short: Named in the roll-call of his own portfolio, used to show risk factors spread across categories rather than stacked: "S&P Global, Costco, Microsoft, Texas Roadhouse, DoorDash and Uber… the risk factors are spread out through all different categories." A disclosure of a continuing holding, not re-argued here.
8:08I have Meta, which is completely different risk factors than MasterCard. I have ASML, which is completely different risk factors than all these companies. We have Google, which has some overlap with Meta, but is also very very different. S&P Global, Costco, Microsoft, Texas Roadhouse, DoorDash and Uber. In the story fund, I have other companies that are similar.
In short: His hold-the-compounder exemplar: you don't sell "a Costco or a Coke or a Visa or a MasterCard or Amex… unless they're egregiously overpriced. Not overpriced, but egregiously overpriced." His marker: ~50× trailing earnings is not egregious — "for Costco, it has never been the case"; ~250× trailing normalized earnings would be. So: keep owning it.
Costco appears here not as a new idea but as his answer to the hardest question a long-term investor faces: when do you sell a winner? Pabrai's rule is that truly durable businesses — the ones that accidentally end up with a deep competitive moat, like Costco, Coca-Cola, Visa, Mastercard or American Express — should be held and not traded, because businesses that survive and thrive for 50 or 100 years are rare enough that owning one is a privilege.
His threshold for selling is deliberately extreme: not merely "expensive," but egregiously overpriced — a valuation "so extreme that you cannot justify it." He puts a number on it. Costco at about 50 times its last year's earnings does not qualify; in his view Costco "has never been" egregiously overpriced in its history. Something like 250 times normalized earnings would be.
The practical takeaway for a holder: pricey is not a sell signal. Keep owning it while the moat holds, and only revisit if the price detaches from reality by an order of magnitude.
46:56Not overpriced, but egregiously overpriced. The valuation has to be so extreme that you cannot justify it. And in all these names that I've mentioned, currently that is not the case. — Yes. — In fact, I would argue for Costco, it has never been the case. Costco trades like 50 times trailing earnings.
In short: "We sold Costco at $1,015 at the end of October." It's begun to break down — the valuation story got the best of it — and he'd rather own Monster than the warehouse clubs (a counterweight to Bernstein naming it a top second-half pick).
Terranova already sold Costco — at $1,015 back at the end of October — and his view here is the bearish bookend to Monster. His reasoning is valuation plus price action: the stock got too expensive and has "begun to break down" (started falling), so even though a Wall Street firm (Bernstein) just named it a top second-half pick, he'd rather own Monster Beverage in the staples sleeve. A reminder of his sell discipline: exit a winner when the valuation stretches and the chart rolls over.
In short: Cited in the "judgment calls" aside — "some stocks I like almost everything they do. Costco is a shining example of that," contrasted with names (Meta, Amazon, Google, Netflix) where he has objections but still holds.
19:15So, there's judgment calls we have to make about all of these stocks. Some stocks I like almost everything they do. Costco is a shining example of that, but in many cases it's more nuanced. There's things that Amazon does that I don't like. I wish they'd do it differently. The same thing for Google and many other companies.
In short: One of his rare YTD winners; ~8.2% revenue / ~10% EPS growth "like clockwork." Moat strengthened (membership value, renewal, digital, trust). His Costco was so packed he had to park by the tire center — "I'm never selling this company, it's a perpetual demand machine"; an enduring, not hype, popularity.
Costco is one of his few winners this year, and the one company he says he's "never selling." It grows earnings ~10% "like clockwork" on rising membership and new warehouses, and its moat — membership value, sky-high renewal rates, growing digital, and deep customer trust — is strengthening. His own packed-parking-lot trip is his anecdote for an enduring (not faddish) popularity: people love Costco because it delivers real value, year after year.
In short: The worked example of a cost advantage: "Costco buys in bulk, and passes the cost savings to customers, which makes the customers more loyal, and drives higher volumes, which allows Costco to lower prices even more." Cited as the textbook flywheel; no stance taken.
In short: Passing example of a quality business that, like any company, must overcome difficult problems over its lifetime — illustrating his "can this org overcome problem X with increasing speed and efficacy?" diagnostic.
8:14They have a billion dollars cash on the balance sheet, no debt, free cash flow close to 400 million for the full year of '26. And it's a business that — one of the mental models that I use that you need to understand in the market is, can this organization overcome X difficult problem with increasing speed and efficacy? Now, why is that important? It's important because any business you invest in, whether it's Google, whether it's Costco, whether it's a cockroach shop, will encounter throughout their lifetime
In short: A big holding but NOT a buy here — mid valuation range; the stock price has run "way ahead of intrinsic value," which now needs to catch up. Pass.
Costco is the membership warehouse retailer and one of his big holdings — but here he is clear it's not a buy at today's price. It's sitting in the middle of its valuation range, and he thinks the stock price has run "way ahead of intrinsic value" (what the business is actually worth).
His view: the company needs to keep growing for a while so its real value catches up to the share price. A great business, but he'd pass on adding right now.
5:56So, this is a big holding of mine. This one's in the middle of its last 52- week range. It's also trading in the middle of the valuation range for its PE and its price to cash flow over the past 5 years. This one I do not rate as a buy. Costco is ultimately still at an expensive valuation.
In short: His proof that capex-heavy / low-margin ≠ low quality: sub-3% net margin, 12% gross margin, yet commands a ~50 trailing / 45 forward PE because it's consistent and reliable — the analogy for hyperscalers going asset-heavy.
Costco is the membership warehouse retailer, used to make a different point. It keeps barely 3 cents of profit per dollar of sales and spends heavily to build pricey new warehouses — by the textbook, a "low-quality," capital-hungry business. Yet investors happily pay one of the highest prices in the market for it (about 45–50× a year's earnings) because it's so consistent and reliable.
That's his counter to the worry that the hyperscalers are turning into heavy-spending, lower-margin businesses: heavy spending and thin margins don't automatically make a company a bad investment if it executes consistently. He's optimistic the AI giants' scale and infrastructure will likewise keep paying off.
18:13There are a lot of companies that require far more capex and have lower margins that have historically proven themselves to be incredibly good investments and good companies. Costco being one of them. Costco's management repeatedly says on the earnings call that they are not a margin company. They don't focus on margin.
In short: Record quarter, but the valuation halo. Q3 FY26 rev +12% to $70.5B ($0.9B beat), EPS +15% to $4.93; comps 9.8% (vs 7.8%), beating Walmart/Target/Best Buy; core comps +6.6%. Gasoline set all-time volume records (a traffic halo); digital comps +20.8%, AI-sourced traffic triple-digit growth. Membership renewal 92.2% (paid-member growth slowed to a "more normal" 4%). Shares −5% — at 47x fwd earnings, execution isn't enough.
In short: Seventh-best watchlist performer at +16.6% year to date, with the best five-year record in either table at 26.3%. Worth reading against 2026-MAR-08, where the same name is flagged as a valuation risk at a 53.7x forward P/E — the performance table and the warning are eleven days apart and describe the same move.
In short: The more extreme half of the same warning: a forward P/E of 53.7x, the highest of the three names compared and a third above NVIDIA's. Named with Walmart as the destination of the flight into perceived AI-immunity, and covered by the same verdict — "overpaying for Walmart or Costco could be a big mistake."
Costco is the more extreme version of the same problem. At roughly 54 times expected earnings it is the most expensive of the three companies compared in this issue — a third dearer than NVIDIA — for a membership warehouse retailer whose profits grow at a fraction of the pace.
The post's diagnosis is behavioural, not analytical: "fear is driving investors into 'AI-proof' businesses," and fear makes people follow the crowd. The consequence is that the multiple, not the business, becomes the risk. It is a useful reminder that a derating can come from a starting price rather than from anything going wrong.
In short: Bill — valuation. "It mortifies me to watch people justify 52x earnings at Costco." A wonderful company, but "there's never been a company that big able to grow enough to justify" that multiple.
Smead has nothing against Costco the business — he calls it wonderful — but he's mortified that investors paid 52 times earnings for it. His point is simple math: no company that large has ever grown fast enough to justify such a price, so paying it is a setup for poor future returns regardless of how good the company is. It's his example of quality-at-any-price gone too far.
14:33Uh I it it it it mortifies me to watch people justify 6 months ago 52 times earnings at Costco. Costco is a wonderful company, but there's never been a company that big that's ever been able to grow enough to justify paying 52 times earnings to buy it. So, so th this whole growth stock and momentum and quality basically uh uh you know Mer convinced Buffett in the in the early 1970s to find wonderful businesses at a reasonable price or a low price a and and hold on to them for a long time with wide moes and high quality. Well, wide mode and high
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