What’s Wrong With Costco?
What’s Wrong With Costco?
Douglas A. McIntyre Mon, August 31, 2026 at 10:15 PM UTC
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COST trades at $951, below analysts' $1,082 target, despite revenue hitting $70.5B and membership fees driving over 70% of profits.
Money flows where excitement is, and retail stocks get left behind when the broader market chases hotter sectors, and even Costco's shares are no exception.
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Costco (NASDAQ: COST) ranks among the best-managed companies in the United States. Some observers go further, calling it the best-managed retailer in the world. Its warehouse membership model gives it a structural advantage almost no competitor can replicate: the company collects billions of dollars in membership fees before customers have placed a single item in their carts.
Yet for much of 2026, the stock has been a source of puzzlement. It spent months lagging the S&P 500 before staging a strong recovery, and it now sits well below its all-time closing high of $1,092 set in May 2026. Understanding the gap between Costco's operating performance and its share price is worth working through.
A Quarter That Impressed and Still Didn't Impress the Market
Costco's fiscal third quarter, which ended May 10, 2026, was genuinely strong. Net sales of $69.15 billion grew 11.6% from $61.96 billion a year earlier, the company's best 12-week sales figure on record. Total revenue, including membership fees, reached $70.53 billion. Net income came in at $2.19 billion, or $4.93 per diluted share, up 15% from $1.90 billion, or $4.28 per diluted share, in the prior-year period. Comparable sales grew 9.8%, and digitally enabled comparable sales jumped 21.5%.
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Membership fee income rose 10.7% to $1.37 billion, up from $1.24 billion a year ago. Total paid members reached 82.9 million, up 4.1%, and the US and Canada renewal rate ticked up to 92.2%. Worldwide, the renewal rate held at 89.7%. Those renewal figures represent a recurring-revenue floor that most retailers can only dream about: once members join, they almost never leave.
The Valuation Problem
One frequently cited culprit for the stock's uneven performance is valuation. Costco trades at roughly 48 times trailing earnings, a multiple that is almost unheard of for a retailer. That premium has been sticky for years, reflecting the market's confidence in the membership model. But at that level, blowout results are already priced in. When Costco's Q3 earnings hit on May 28, shares initially fell about 5%, even though the report beat Wall Street estimates. The market's reaction captured a paradox specific to highly valued growth stocks: when expectations are built into the price, even strong results can disappoint at the margin.
Among the 36 analysts covering Costco, the consensus is a "Moderate Buy," supported by 19 "Strong Buy" ratings, four "Moderate Buys," and 12 "Holds." The mean price target from analysts polled by S&P Global sits around $1,077, implying meaningful upside from the current share price near $935. UBS raised its target to $1,275 in May, while Bernstein's Kate McShane raised hers to $1,102, both citing confidence in the company's sustained growth trajectory.
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It Is Not the Retail Market or the Economy
The stock's underperformance relative to its all-time high is not a story about deteriorating fundamentals in retail generally. Nationwide retail and food services sales for the May-through-July 2026 period ran 6.3% above the same stretch a year ago, according to the US Census Bureau, with May alone clocking in at a revised 7.3% year-over-year gain before moderating in subsequent months. Consumer spending has remained resilient even as some headline figures softened.
Employment has also held up better than many economists expected. The labor market continued adding jobs through mid-2026, and that underlying strength has supported consumer spending at warehouse clubs. Costco's CFO noted during the Q3 call that consumers remain willing to spend at Costco and that the gas business is particularly robust, with record gasoline sales volumes during the quarter.
Leadership Is Not the Issue Either
Nor is this a management story. Ron Vachris, who became CEO in January 2024, has continued the disciplined operational culture that Costco has maintained for decades. Under his watch, the company has expanded its warehouse count to 931 locations globally and is on track to open 26 net new warehouses in fiscal 2026, with longer-term targets of 30-plus annually. Capital expenditures surged 25% to $1.41 billion in Q3 alone, funding new warehouses, digital infrastructure, and a Google retail media buildout. Those investments compress near-term margins but reflect confidence in the runway ahead.
Where the Money Is Going Instead
The most credible explanation for the stock's relative sluggishness may be something more structural and less fixable. Retail, even elite retail, is not the sector attracting the biggest waves of capital right now. Investor attention and money flow toward artificial intelligence, semiconductors, and technology broadly. A stock can be excellent in every operational sense and still drift when the market's enthusiasm is concentrated elsewhere. Costco's 10-year total return of roughly 661% dwarfs the S&P 500's comparable return, but that history does not insulate it from shorter-term rotation dynamics. The warehouse membership model that makes Costco nearly untouchable as a business does not guarantee it will be the market's favorite trade in any given quarter.
Editor's note: This article has been with Costco's official fiscal Q3 2026 results (net sales of $69.15 billion, membership fee income of $1.37 billion, EPS of $4.93, and a worldwide renewal rate of 89.7%), current analyst consensus data reflecting 36 analysts with a mean price target near $1,077, and the most recent US retail sales figures showing the May-through-July 2026 period running 6.3% above the prior year.
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Contact editorial@247wallst.com for any questions or corrections.
Source: “AOL Money”
