Despite Wall Street’s continued enthusiasm, warehouse wholesaler Costco Wholesale (COST) has entered a clear downtrend, losing nearly 10% of its market value over the past three months. Retail investors are divided: some view the pullback as a prime “buy the dip” opportunity, while others interpret it as an early warning of deeper weakness. Meanwhile, in the options market, traders are positioning defensively ahead of the company’s pivotal fiscal fourth-quarter earnings report later this month.
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In the analysis that follows, I argue for a Bearish outlook on COST in the months ahead, citing its elevated valuation and a convergence of short-term headwinds.
Costco Slides Below Key Moving Averages
COST lagged major market benchmarks last week, falling ~2% over the week while broader benchmarks like the S&P (SPY) and the Invesco ETF (QQQ) remained flat. Its decline didn’t follow any news. Costco has been silent since it reported its July sales results on August 6.
However, investors did see a significant spike in trading volume on Tuesday, August 26. Over 4.3 million shares were traded, nearly double the stock’s recent average. The surge in volume coincided with the stock hitting its weekly low. In the absence of news, this often indicates technically driven trading or position adjustments by institutional investors, who have been quick to lower their exposure to COST in the recent months.
After breaching its 200-day moving average last Monday following clear resistance at the $1,000 price level, COST now trades comfortably below its key moving averages, as shown by TipRanks’ charting data.
I do suspect that this is a clear sign that its stock is ready to cool off after an extended period of consistently higher highs. Notably, COST diverged from the S&P earlier this summer, which is highly unusual given that the two ordinarily trade hand-in-hand.
What Do the Hedge Funds Think?
Despite its headline-grabbing exploits, the smart institutional money doesn’t seem to like Costco stock.
According to TipRanks’ hedge fund tracker, COST is currently seen with low confidence by hedge fund managers on Wall Street.
According to 13F filings from 488 hedge funds submitted to the U.S. SEC over the past three months, as Costco has seen higher highs, hedge fund managers have reduced their stakes from more than 6 million shares in January 2024 to ~4.5 million today. The current Confidence Signal based on 16 leading hedge funds is Negative.
The Retail Take on Costco
Retail remains divided on COST. Determined bulls are buying the dip with long-term conviction, following years of uncertainty. In some cases, shareholders are holding COST stock for the third time, having bought in at toppy levels, realized the stock was quickly becoming overvalued, and then being forced to sell as a result of excessive volatility.
Meanwhile, others remain skeptical of COST’s premium valuation, which features a P/E ratio over 50. At such multiples, many investors are questioning the wisdom of buying in at ~$1,000 per share. However, if the price retreats towards the $850 mark, it would seem there is plenty of demand waiting at lower levels.
High Valuation, Moderating Growth, and Slim Margins
Subtle but critical fundamental shifts are weighing on COST. Most notably, its premium valuation—trading at more than double the sector average P/E—leaves little margin for error. COST’s current P/E ratio of ~52 towers over the sector median of 17. On a forward-looking basis, COST is also showing its inherent premium (52 against a sector average of 18).
Should broader market sentiment turn more risk-averse, investors may grow reluctant to pay such a steep multiple for Costco’s future earnings.
At the same time, after years of outsized gains driven by pandemic tailwinds and inflation, same-store sales growth is naturally decelerating as year-over-year comparisons become more challenging. Since December 2024, COST’s comparable sales growth has fallen from 7.4% to 5.8% in June 2025.
Simultaneously, Costco’s margins are being impacted by inflation, tight markups, and growth in lower-margin e-commerce, resulting in a decline from 13% in 2020 to 12.8% in 2024. Finally, Costco remains vulnerable to weakening consumer demand, which can mute demand for big-ticket items such as electronics, as well as retail competition from the likes of Sam’s Club.
August Retail Sales Preview
Costco is slated to release its August 2025 retail sales results this week, with investors bracing for further signs of moderation. I view same-store sales growth of 5% to 7% as a positive surprise, signaling Costco’s resilience against softer consumer spending. A print in the 3% to 5% range would likely be seen as “in line,” resulting in minimal stock reaction. However, anything below 3% would be a disappointment and could act as a catalyst for immediate downside.
Hedging Bets on COST’s Bullishness
In any event, investors may benefit from hedging their bets – bearish or bullish. Costco’s open interest ratio (put/call) immediately following its recent quarterly report was 1.45, 1.53, and 1.85 over the following three days, thereby suggesting a directionally bearish outlook from the options market. Puts outpacing calls implies that some are betting or hedging on Costco’s stock to decline following its report.
Is COST Stock a Good Buy?
On Wall Street, Costco carries a Moderate Buy consensus rating based on 11 Buy, eight Hold, and zero Sell ratings in the past three months. COST’s average price target of $1,100.33 implies an upside potential of over 15% in the next 12 months. Interestingly, analyst Corey Tarlowe from Jefferies reiterated a Buy rating on COST just last week while setting a price target of $1,106.
Bearish Setup Emerging for COST Ahead of Key Reports
The convergence of a sustained bearish technical trend, stretched valuation, and elevated earnings expectations creates an unfavorable risk/reward setup for COST in the intermediate term—supporting a bearish outlook.
I expect the upcoming August retail sales report to reinforce the narrative of moderating growth, potentially at a pace faster than investors anticipate. A few weeks later, Costco’s fiscal fourth-quarter earnings should shed further light on margin pressures and set the tone for revenue and profitability expectations heading into fiscal 2026.