Costco is a high-quality long-term investment with sustainable growth driven by its membership model and international potential, despite historically high valuations.

Yes, I chose a company from a completely different sector for the last stock in today's video, but I believe it's a high-quality, core company for a long-term investor's portfolio, and that's Costco.

This is a name familiar to everyone, of course, isn't it? It is likely that many of the viewers have a Costco membership.

One of the things I've always found impressive about Costco is, I mean, it's so much fun to walk around its aisles, isn't it? It's one of my favorite things. But do you know what's interesting?

Behind this model, which we all know as customers and shoppers, they run a deceptively simple business, which is essentially charging customers an annual membership fee for the right to shop in their warehouses, then selling a very specific range of products, with far fewer inventory units than a regular retailer, and at prices with remarkably low profit margins.

As you know, they do of course have their own brands, they sell third-party brands, and they have direct relationships with many manufacturers, but the reality is that retail sales are often a break-even business as an intentional design.

Therefore, membership fees are the main source of Costco's profits. This is a really interesting part of the puzzle of this business.

Costco earns its profits when customers renew their membership and keep coming back, not by increasing profit margins on every item they buy, and that's part of why the brand enjoys unusually strong loyalty.

During periods of macroeconomic ups and downs, this represents real value for shoppers. You pay an annual membership fee, and you can go and access wholesale goods at a cost that is often much more affordable than many other retailers, across a wide range of categories.

As you know, Costco receives its profits upfront each year through those membership fees.

What is interesting, as I mentioned, is how they tend to set a ceiling for their warehouses at around 3,500 to 4,000 storage units. A grocery store or large retail store typically offers tens of thousands of items.

Therefore, this limited selection means that Costco can commit to purchasing enormous quantities of each individual product. This gives them considerable bargaining power to lower prices directly with manufacturers, and of course, they often bypass the middle layers of distributors that the small retailer has to deal with.

They have their own brand, "Kirkland Signature," which now accounts for a very large share of total sales. They work directly with manufacturers to produce similar or often better products under their own brand.

This is a big part of why this company has been able to achieve consistent growth in revenue, and more importantly, profitability and cash flow over the years.

The company announced its full-year results for 2026 just in the past two weeks. They now have nearly 1,000 warehouses worldwide, more than 84 million members, and in the US and Canada, where most of their warehouses are concentrated, they have a renewal rate exceeding 92%.

They are also seeing executive memberships, Costco's premium, higher-fee category, reach an all-time high in terms of penetration rate within total memberships. This is important because executive members tend to spend more, and tend to renew their membership reliably.

In just the last quarter of their fiscal year 2026, net sales exceeded $93 billion. This represents an 11% year-on-year increase. That kind of double-digit growth is typical for Costco.

Net income was approximately $3 billion. They saw a 7% increase in membership fee revenue, and comparable sales grew by more than 9% year-over-year.

Another thing I'd like to mention, you know, everyone thinks of Costco in terms of groceries, and maybe clothes. It is clear that there is pharmacy activity. There's the car side.

They actually have a business in the travel industry. Costco's cruise bookings have grown by 16% in their latest report, which they just released. They also have tremendous growth potential outside of North America for their business as a whole.

As you know, their presence outside of North America is still very small compared to their current size. This gives them a very strong and sustainable growth trajectory. At the same time, the membership fee model gives them a highly recurring and predictable revenue stream.

The only note of caution I will leave you with here is that Costco stock is rarely cheap from almost any valuation perspective. As you know, their shares have historically traded at a high valuation that takes into account a lot of stability and growth.

This has been true for years, but I think if you are a long-term investor with a buy-and-hold strategy, this stock can find a place in a well-diversified portfolio.

They also tend to pay special dividends, perhaps as much as $15 per share or more from time to time. So, this might be another reason to take a second look at this stock.