Costco Wholesale Corp. has reported impressive financial results, highlighting a significant increase in free cash flow (FCF) and improved FCF margins. On December 11, 2025, the company announced a robust fiscal first quarter, yet its stock price has declined by 8.7% over the past year, closing at $873.35 on December 26, 2025. This decline raises questions for potential investors, who may view the stock as an attractive opportunity.
The decline in Costco’s stock price is puzzling, especially in light of the company’s strong outlook. The recent financial report revealed that revenue for the quarter ending November 23, 2025 rose by 8.28%, with a comparable store sales increase of 6.4%. More notably, free cash flow surged by 58.4% year-over-year, reaching $3.162 billion, up from $1.996 billion in the same quarter last year. Over the past year, total FCF has climbed to just over $9 billion, a significant increase from $5 billion the previous year.
Costco’s FCF margins have also improved significantly. According to Stock Analysis, the company’s Q1 2026 FCF margin stood at 4.70%, compared to 3.21% a year prior, indicating a 46% enhancement in efficiency. The trailing twelve months (TTM) FCF margin also showed improvement, rising from 2.85% in fiscal year 2025 to 3.21%. Such trends suggest strong operational leverage and effective management, which could lead to further increases in FCF in the coming months.
Analysts project that Costco’s sales for the fiscal year ending August 31, 2026 will reach $297.14 billion, an 8% increase from $275.2 billion in fiscal year 2025. For the following fiscal year, sales are expected to rise further to $318.18 billion. By applying a conservative estimate of a 3.53% FCF margin—an increase based on recent performance—analysts can project a free cash flow for the next twelve months (NTM) of approximately $10.68 billion. This figure represents a 36.3% increase over the $7.837 billion in FCF generated in fiscal year 2025.
The analysis of Costco’s stock value is further reinforced by its dividend policy. Currently, the company distributes only 25% of its FCF as dividends, resulting in a modest yield of 0.60%. If Costco were to distribute 100% of its FCF, the yield could theoretically rise to 2.40%. Using the projected NTM FCF, the potential market value of Costco’s stock could be estimated at $445 billion, which is approximately 15% higher than its current market capitalization of $387 billion.
Furthermore, if one considers the TTM FCF of $9 billion as 2.32% of its current market capitalization, the stock could be valued at around $460 billion, suggesting a target price of over $1,038 per share.
Analysts share a generally positive outlook on Costco’s stock. A survey from Yahoo! Finance indicates that the average price target from 36 analysts is $1,031.45, while Barchart’s mean survey shows a higher target of $1,048.31. This consensus indicates a strong belief in Costco’s potential, as the average target price across multiple surveys hovers around $1,009 per share.
In conclusion, despite the recent decline in stock price, Costco’s financial health remains robust, presenting a compelling case for value investors. With strong cash flow growth and an optimistic outlook for future sales, Costco stock could indeed be undervalued, making it an interesting consideration for potential buyers. As the market continues to react to these financial results, further insights into leveraging investment strategies will be explored in upcoming analyses.
