The Costco Paradox: Why Stock Performance Lags Despite Business Excellence

Costco’s operational machinery is firing on all cylinders, yet the market punishes it repeatedly. For conscious investors seeking value, this disconnect between stellar fundamentals and deteriorating stock price presents both a puzzle and a cautionary tale about how the market values growth stories.

A Business That Keeps Delivering

Let’s start with what’s undeniably working. Costco’s September 2024 membership fee hike—$5 for Gold Star and $10 for Executive tiers—barely dented loyalty. The company reported a 92.4% U.S. and Canada retention rate, while global renewals hit 89.8%. Membership income surged 14%, more than double the prior year’s growth. That’s not just customer stickiness; it’s pricing power in action.

The numbers tell the story: Q4 fiscal 2025 delivered $5.87 EPS and record revenue of $86 billion, crushing analyst expectations. Same-store sales growth hit 5.7%, with international locations pushing 8.6% comps. And after a digital slowdown to 13.6% growth in Q3, September rebounded with 26.1% e-commerce comps, followed by 16.6% in October. If sustained, this signals a genuine inflection in Costco’s online strategy.

Brand loyalty remains unmatched. The Kirkland Signature private label, employee satisfaction, and yes—that iconic $1.50 hot dog combo—create moat-like advantages most retailers can only dream about.

The Valuation Trap: Where Conscious Investors Should Pause

Here’s where the mathematics become troubling. COST trades at 49 forward P/E despite being down for the year. That’s 14 times book value—comparable to NVIDIA’s 65 forward P/E, except NVIDIA generates 70% gross margins while Costco operates at just 11%. The company’s operating margin sits below 4%, meaning any margin compression becomes existential.

For a conscious investor, the question becomes uncomfortable: Are you paying semiconductor-stock valuations for a low-margin wholesaler? With razor-thin merchandising margins, rising inflation, and tariff uncertainty, Costco’s bottom line lacks cushion. At this valuation multiple, even modest hiccups look catastrophic.

Consumer Weakness Is Creeping Up the Income Ladder

Signs of spending deterioration among lower-income consumers emerged in recent earnings reports from McDonald’s and PepsiCo. While Costco’s membership skews affluent, the stock’s premium valuation offers zero margin for error. If weakness spreads to higher-income households—the engine driving Costco’s growth—Q1 2026 results could disappoint dramatically.

The Technical Picture Is Deteriorating

Since June, COST shares have been declining steadily, with acceleration recently despite consistent earnings beats. The 50-day simple moving average has fallen below the 200-day SMA and now acts as ceiling resistance on any rally attempt. The Relative Strength Index hasn’t hit oversold territory (below 30), suggesting further downside remains. On-balance volume trends downward, signaling institutional exit or de-risking—never a bullish sign.

A wedge pattern has formed with lower highs stacked sequentially. The stock recently revisited its 2025 lows. These technical headwinds create a formidable barrier to near-term reversal.

The Bottom Line for Value-Conscious Investors

Costco’s business remains formidable. But the stock faces a different problem entirely. At current multiples, the market has priced in perfection, leaving minimal room for disappointment. A conscious investor should recognize the distinction: the company is excellent; the stock valuation is excessive. Until these parameters realign—either through stock price correction or earnings acceleration—cautious positioning remains prudent.