3 Reasons Costco Stock Is Struggling

Costco closed fiscal 2025 with revenue up about 8% for both Q4 and the full year, with adjusted comparable sales rising 6.4% in Q4 (7.6% for the full year) though November slowed to 6.4% from October's 6.8%. A late-year membership fee bump ($5 for Gold Star, $10 for Executive) drove a 14% jump in membership fee revenue in Q4 but management signals hikes are infrequent (about every 5.5 years), leaving limited near-term catalysts; the stock trades at roughly 49x earnings versus the S&P 500 at 25x, making the current valuation hard to justify absent reaccelerating growth or margin expansion.

Analysis

Market structure: A slowing of Costco's comparable-sales acceleration and the recent membership hike being lapped benefits rival value grocers (WMT, KR) and private-label players who can undercut bulk margins; consumers gain purchasing power if comps slow. Costco's pricing power is intact for basics but limited upside from margin expansion given its reinvestment stance; membership revenue is a one-time cadence driver, so expect lower incremental EPS tailwinds for 12–36 months. Cross-asset: a premium multiple re-rating at COST (≈49x) will pressure growth equities’ relative performance, lift defensive staples and could push modest equity-to-bond rotation if growth disappoints; options vol on COST should rise into next earnings and holiday comps.

Risk assessment: Tail risks include a sharp consumer slowdown that reduces renewal rates (risk threshold: membership renewal decline >3–5% year/year) and an unexpected margin squeeze from commodity/gas spikes; regulatory risk is low but execution risk on international rollout is material. Time buckets: immediate (days) — volatility around monthly comps/holiday sales; short-term (3–9 months) — membership-fee comps & holiday cadence; long-term (3–5+ years) — international expansion and fee reset cadence (~every 5–6 years). Hidden dependency: earnings rely on sticky renewal economics, not same-store goods margins; catalyst to reverse trend would be accelerating international openings or surprise pricing power (unexpected fee/perk mix) within 12–24 months.

Trade implications: Avoid large outright long on COST at 49x; establish tactical defined-risk shorts via options or pair trades. Specific plays: 3–6 month bear-put spreads on COST sized 1–2% NAV, or pair long WMT (2–3% NAV) vs short COST (1–2% NAV) to express relative share gain over 6–12 months. Rotate 2–4% from discretionary (XLY) into staples (WMT, KR, XLP) to reduce multiple risk; add volatility trades into earnings windows (buy straddle if >18% IV implied). Timing: initiate positions ahead of next monthly comp prints and close or reassess after membership-fee anniversary 12 months out.

Key Decisions for Investors

• Establish a 1–2% NAV defined-risk bearish position on COST via a 3–6 month bear-put spread (buy 5–10% OTM put, sell 15–20% OTM put) to capture potential multiple compression or a negative comps surprise into the next two quarterly prints.
• Implement a relative-value pair trade: go long WMT (2–3% NAV) and short COST (1–2% NAV) for 6–12 months to play share shift toward lower-priced omnichannel grocers; trim pair if WMT outperforms by +8% or if COST P/E compresses below 40.
• Add 2–4% portfolio weight to consumer staples (WMT, KR, XLP) funded by reducing discretionary exposure (XLY) by same amount; re-evaluate after 3 quarters or if CPI-driven discretionary spending rebounds +1% month/month.
• If COST drops >10% from current levels or P/E falls to ~40, scale into a 1–3% long position (buy stock or call spreads) as a contrarian recovery play; otherwise avoid adding at present valuation due to limited near-term catalysts.