3 Reasons Costco Stock Is Struggling

Costco closed fiscal 2025 with roughly 8% revenue growth for both Q4 and the full year, with adjusted comparable-store sales up 6.4% in Q4 and 7.6% for the year; November comps slowed to 6.4% from October's 6.8%. A late-year U.S./Canada membership-fee hike (Gold Star +$5, Executive +$10) drove a 14% jump in membership-fee revenue in Q4 but will create a difficult year-over-year comparison and management signals hikes will be infrequent. The stock trades at about 49x earnings versus the S&P 500 at ~25x, leaving valuation exposed to even modest growth deceleration or limited margin expansion given Costco’s reinvestment model and mature domestic footprint.

Analysis

Market structure: A slower comparable-sales trajectory at Costco (COST) benefits price-sensitive rivals (WMT, TGT) and private-label suppliers as consumers hunt value, while wholesalers with lower multiples outperform on re-rating risk. Membership-fee tailwinds are largely lapped into FY26, so near-term revenue growth will rely on same-store sales and international expansion; a sustained deceleration to sub-5% comps would materially reduce implied growth priced into COST’s ~49x P/E. Cross-asset: a derating of high-multiple staples would rotate flows into high-growth tech (NVDA, AAPL) and increase demand for muni/corporate bonds as yield-seeking liquidity rebalances; expect modest rise in COST option IV around earnings and greater USD sensitivity for international sales.

Risk assessment: Tail risks include a sharper consumer slowdown (US retail CPI shock >150bp core increase), an unexpected membership churn >2% annually, or a costly international rollout misstep (capital spend >$1.5bn incremental). Immediate (days) risk: earnings/comp release volatility; short-term (weeks–months): FY26 membership comparables and margin pressure if fuel/gas tailwinds reverse; long-term (years): growth hinges on >10% CAGR from international or higher-margin services. Hidden dependencies: fuel/gas price normalization, FX moves (USD ±3% changes EPS sensitivity ~1–2%), and supplier concentration for key categories.

Trade implications: Tactical short bias on COST if next-quarter adjusted comps drop below 5% or management trims FY26 guide by >3%: initiate 1–2% notional short or buy 3–6 month 2.5–5% OTM puts, sized to portfolio volatility. Pair trade: go long WMT (1–2%) and short COST (1%) to play defensive share gains; alternatively rotate 2–4% into NVDA/AAPL if tech outperformance continues. Use covered-call sell on existing COST exposure (1–3 month calls at strike +8–12%) to harvest premium while earnings visibility is low.

Contrarian angles: The market may be underestimating repeatability of low-single-digit comp upside plus recurring Executive fees — if COST can sustain 6–7% comps and maintain Exec membership growth, the 49x multiple is defendable (implies ~10–12% EPS CAGR). The sell-off could be overdone if price drops >15% (to P/E ~42), presenting an accumulation zone given high cash conversion and net cash on balance sheet; conversely, management signaling earlier-than-expected fee hikes would re-rate the stock higher quickly. Monitor: monthly comps, Executive membership growth %, and international square footage roll-out cadence closely (changes within 30–90 days are actionable).

Key Decisions for Investors

• If you hold COST, sell 30–50% of exposure and implement downside protection: buy 3–6 month 5% OTM puts sized to cover the sold portion if next-quarter comparable sales <5% or management lowers FY26 EPS guidance by >3%.
• Establish a 1–2% pair trade long WMT and short COST (equal notional) to capture potential market-share shift from premium wholesale to mass discounters over the next 3–12 months; trim if WMT outperforms by >6% or COST underperforms by >10%.
• For a directional short: initiate a 1–1.5% notional short of COST via outright stock or buy 3-month 2.5% OTM puts if COST remains >48x forward P/E and monthly comps decelerate two months consecutively; place stop-loss at +8% from entry.
• If bullish contrarian: accumulate COST in tranches to 1–2% portfolio weight only if price falls ≥15% (implied P/E ≈42) and Executive membership growth remains ≥3% YoY; pair with covered-call sales (1–3 month strikes +10%) to improve entry yield.
• Rotate 2–4% of equity allocation into NVDA/AAPL over the next 30–90 days as alternative uses of capital given Costco’s valuation risk; prefer buying LEAPS or 6–12 month calls on NVDA if conviction in secular AI demand remains high.