Costco Wholesale Corp. recently demonstrated robust financial performance, reporting significant increases in free cash flow (FCF) and FCF margins on December 11, 2025. Despite this positive outlook, the company’s stock has seen a decline of 8.7% over the past year, closing at $873.35 on December 26, 2025. This decline raises questions among investors about whether Costco’s stock, identified by the ticker symbol COST, presents an attractive buying opportunity.
In a detailed analysis, it was noted that Costco’s fiscal first-quarter revenue, which concluded on November 23, 2025, surged by 8.28% year-over-year, with a comparable store sales increase of 6.4%. The company’s free cash flow soared to $3.162 billion, a remarkable 58.4% increase compared to the previous year’s first quarter. Additionally, over the past year, Costco’s total free cash flow exceeded $9 billion, up from just over $5 billion in the previous year.
The impressive FCF margin of 4.70% for Q1 2026, compared to 3.21% a year earlier, indicates a 46% improvement in Costco’s operational efficiency. This upward trend in FCF margins suggests that the company is effectively converting sales into cash, reflecting robust management practices and strong operational leverage.
Analysts project that Costco’s fiscal year sales for the period ending August 31, 2026, will reach $297.14 billion, which represents an 8% increase from $275.2 billion for the year ending August 31, 2025. Looking further ahead, projected sales for the following year are expected to rise to $318.18 billion. By applying a conservative estimate for free cash flow margins, the anticipated sales for the next twelve months (NTM) could reach $302.65 billion, marking a 10% increase over FY 2025.
Utilizing a projected FCF margin of 3.53%, the expected free cash flow for the NTM period could total approximately $10.68 billion, signifying an increase of 36.3% compared to the $7.837 billion generated in FY 2025. This projection leads to the conclusion that Costco’s stock might be undervalued at its current price.
Costco currently distributes only 25% of its free cash flow in dividends, resulting in a modest dividend yield of 0.60%. If the company were to increase its payout ratio to 100%, the dividend yield could theoretically rise to 2.40%. Using the projected free cash flow, if Costco were to adjust its dividend payments, the market value could increase to approximately $445 billion, reflecting a 15% premium over its current market cap of $387 billion.
Further analysis shows that Costco’s trailing twelve months FCF of $9 billion corresponds to 2.32% of its market capitalization, suggesting a potential market value of approximately $460 billion. This indicates a target price of over $1,038 per share.
In examining the potential for dividend increases, if Costco were to enhance its dividends by 18.6% to $6.17 per share, the stock could be valued at approximately $1,028 based on its average dividend yield.
Analysts largely support these findings, with an average price target of $1,031.45 according to Yahoo! Finance, while other surveys suggest targets of $1,048.31 and $947.26. This consensus indicates a significant upside for Costco’s stock, reinforcing the view that it could be worth nearly $1,032 per share.
In summary, Costco’s stock presents a compelling case for value investors, given its strong financial metrics juxtaposed with a declining stock price. The company’s ability to generate free cash flow and improve margins positions it favorably for future growth. Investors should consider the potential for price recovery as Costco continues to demonstrate strong operational performance.
