Costco's Q3 2026: A Master Class in Why Business Quality Matters More Than Valuation Timing

I'll be upfront: Costco has never been cheap by traditional valuation metrics. It trades at a significant premium to most retailers. And yet, every time I've looked at selling on valuation grounds, the business has continued compounding in a way that made the timing call feel irrelevant.

Q3 FY2026 reinforced this again. Net sales up 11.6% to USD 69.15 billion. Comparable sales up 9.8%. E-commerce comparable sales up 21.5%. EPS $4.93 versus $4.28 a year ago. Membership renewal rate 92.2% in the US and Canada.

The membership model is the thesis. Costco collects USD 1.37 billion in membership fee income that it essentially treats as pure margin contribution before selling a single product. The retail operation runs at deliberately thin margins; the membership fee is where the business earns its profitability. This means Costco's incentive is always aligned with the customer: keep prices low to retain memberships, not to maximise product margin.

With 41.2 million paid executive members growing at 9.6% YoY, the recurring revenue base keeps expanding independently of any individual quarter's sales performance.

The long-term investor mistake with Costco is spending too much time on whether the P/E ratio looks elevated today. The right question is whether Costco will have more members, higher renewal rates, and more executive tier subscribers in five to ten years than it does today. Every quarter's evidence points to yes. That's why I hold it and don't trade around it.