Costco Just Posted 12% Sales Growth and 92% Membership Renewals, and the Stock Fell Anyway. Is This the Buy-the-Dip Moment?
This top retail stock has been under pressure in the past month.
By Neil Patel
Costco (COST +0.80%) continues to prove to the market that it's a consistent performer in uncertain macroeconomic times. During its fiscal 2026 third quarter (ended May 10), the company reported 11.6% year-over-year revenue growth. Perhaps even more impressive, its U.S. and Canada memberships had a renewal rate of 92.2%.
This didn't prevent the shares from falling. As of June 22, this retail stock trades more than 4% below its price prior to the last earnings report on May 28. Should investors buy the dip?
Same-store sales were lifted by higher gas prices
Costco opened four net new warehouses last quarter, which supports revenue growth. However, the bigger contributing factor was same-store sales (SSS), which were up 9.8%. The average ticket size rose 7.3%. But it was encouraging to also see foot traffic increase by 2.4%. Excluding the impact of higher gas prices, Costco's SSS still climbed a healthy 6.6%.
The current economic backdrop plays to Costco's benefit. Inflation is at a three-year high, so households are starting to care more about saving money in an effort to find greater value within their budgets.
"Our goal is to be the first to lower prices and the last to raise them," CEO Ron Vachris said on the Q3 2026 earnings call. Products in a range of categories saw price reductions last quarter.
That sort of customer value proposition might explain why the number of membership households grew by 4.1% year over year to 82.9 million. And the renewal rate in the U.S. and Canada was 92.2%, improving by 10 basis points sequentially from the previous quarter.
It's hard to pinpoint why the market reacts the way it does
Costco's Q3 financial results looked solid on the surface. Therefore, it can be difficult for investors to figure out why the market reacted the way it did, bidding the company's share price down.
While revenue exceeded analyst estimates, the business posted diluted earnings per share (EPS) that matched expectations. Investors might have wanted to see a meaningful bottom-line beat.
Whatever variables you believe pressured the stock price, it's still obvious that shares trade at an expensive valuation. Investors who want to buy Costco must be comfortable with a price-to-earnings ratio of 47.8. This is what's required to own a business whose diluted EPS is projected to grow at a compound annual rate of 11.1% between fiscal 2025 and fiscal 2028, according to consensus analyst estimates.
Costco's durability in any economic environment certainly deserves a premium. But even though it's trading 13% below its record, investors should stay away from the stock to avoid the risk of severely overpaying.