Costco Wholesale (COST) will release its fiscal Q4 2025 results next week on September 25th. The warehouse retailer remains one of the most admired companies in retail, known for its loyal membership base and consistent execution. But with shares trading near record highs and valuation multiples stretched, I see little room for upside heading into this report.
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Record net income, Growth, net sales improvement, and e-commerce strength are providing strength at just the right time; however, risks do linger with Trumpian policy shifts being a constant potentiality. Meanwhile, slowing renewals could be the first signs that COST’s wholesale membership model may be running out of steam. I’m taking a tentatively Bearish stance ahead of next week’s critical numbers.
Wall Street Expects Another Solid Quarter from COST
Wall Street forecasts Q4 EPS of $5.80, with estimates ranging from $5.50 to $5.97. That figure has increased by about 1.5% over the last year, but revisions in recent months have shifted negatively, with three upward and 11 downward moves in the past 90 days. Revenue is projected at $86.1 billion, with a range of $84.9 billion to $87.2 billion.
On the surface, these estimates suggest strong momentum. Earlier this month, Costco reported August sales that highlighted continued demand. U.S. comparable sales excluding fuel and FX rose 6.7%, slightly better than July’s 6.5%. For the full fiscal Q4 period, U.S. comps rose 6.0%, while total comps climbed 6.4%. Net sales for the quarter reached $84.4 billion, underscoring Costco’s ability to attract value-conscious shoppers even in a challenging economic environment.
Yet, with consumer spending patterns uneven across the retail sector, there’s a risk that these numbers mark the high end of performance rather than a baseline.
Costco Still Outpaces Rivals, But Cost and Margin Risks Loom
While Costco continues to outpace many of its competitors, I believe risks are also rising. U.S. consumers are not in their strongest shape, as reflected in recent reports from Target, Walmart, and BJ’s Wholesale, which showed sluggish or even negative comparable sales growth.
I currently model Q4 EPS of $5.75, slightly below consensus. My estimate incorporates cost pressures tied to Costco’s June decision to extend U.S. club hours for executive members. While this initiative may improve customer satisfaction and loyalty, it will also incur additional labor expenses that could impact profitability in fiscal 2025 and 2026. Wall Street may not yet be fully accounting for these incremental costs.
Membership enforcement is another factor to watch. Costco has recently tightened its rules to prevent non-members from shopping in its warehouses. While this could initially reduce incremental sales, converting casual shoppers into paying members would boost long-term profitability. It’s a trade-off that could be positive over time, but near-term sales impacts remain a risk.
Furthermore, if price pressures accelerate, Costco could face a dilemma: either pass on costs to members, risking demand destruction, or absorb them to protect its value image, compressing margins. Neither outcome is favorable.
Why Costco Stock Faces ~20% Downside
Costco’s valuation is stretched by almost any metric. The stock trades at a forward P/E ratio of 54.5, well above its five-year average of 45 and more than triple the sector median of 16.7. Its EV/EBITDA multiple of 33.4 also towers over the sector median of 11.3.
Yes, Costco continues to post stronger growth than its peers. Revenue growth of 6% year-over-year is significantly above the sector median of 2.5%. EBITDA climbed more than 10%, far exceeding the sector median of 3.6%. But paying more than 50x earnings for mid-single-digit growth is difficult to justify.
Using several valuation models, including price-to-sales multiples, EV/revenue multiples, and five-year DCF growth exits, I arrive at a fair value estimate of $750 per share. That represents about 21% downside from the current price. In my view, this makes Costco a risky bet for new buyers ahead of earnings.
What is the Prediction for Costco Stock?
According to Wall Street estimates collated by TipRanks, Costco carries a Moderate Buy consensus rating based on 20 analyst reviews. Eleven analysts are bullish going into next week’s figures, while nine are neutral. With all the market risks outlined, not a single COST stock bear can be found on Wall Street. COST’s average stock price target of $1,086.51, implying almost 14% upside from current levels, with estimates ranging from $907 to $1,225.
This optimism reflects Costco’s unrivaled business model and long track record of execution. However, I believe many analysts are underestimating the risks of higher costs and already elevated expectations.
Costco’s Premium Valuation Caps the Upside
Costco remains one of the strongest operators in global retail. Its loyal membership base, consistent sales growth, and reputation for value are unparalleled. But with shares already pricing in perfection, I see limited upside heading into Q4 earnings.
High expectations, expense headwinds, and macro risks make it difficult to justify Costco’s current premium. While long-term investors may continue to hold for stability, I don’t see the stock as attractive at current levels. In my view, Costco is more likely to tread water or face downside pressure than deliver further near-term gains.