You’d think a company that just reported nearly $30 billion in sales for a single month would be the darling of Wall Street. In early January 2026, Costco did exactly that, posting a massive December sales beat that should have sent the stock to the moon. Instead, the narrative has been a lot messier.
If you’ve been watching your portfolio lately, you’ve probably noticed the dip. It’s frustrating. You see the packed parking lots and the $1.50 hot dog lines and think, "How can this stock be down?" Honestly, the answer isn't that Costco is "failing"—it's actually doing great. The problem is that it might be doing too well for its own good, at least where the stock price is concerned.
Why is Costco stock dropping when sales are up?
The biggest reason why is costco stock dropping right now comes down to a concept analysts call "priced to perfection." For most of 2025, investors treated Costco like a high-growth tech stock rather than a grocery warehouse. By the time we hit the 2026 fiscal year, the stock was trading at a price-to-earnings (P/E) multiple of roughly 46 to 50.
To put that in perspective, that’s double the valuation of many other blue-chip retailers. When a stock is that "expensive," even a great earnings report can trigger a sell-off. If the company doesn't absolutely shatter every single expectation, traders start taking profits. It’s less about a business problem and more about a "math problem" on Wall Street.
The Valuation Trap
Basically, the market already "baked in" all the good news months ago. When Costco reported its Q1 2026 results in December 2025, net income hit $2.001 billion—up significantly from the previous year. But because everyone expected that growth, there was no "surprise" left to push the price higher.
Tariffs and the "Front-Loading" Effect
There’s also a weird glitch in the recent data. In late 2025, there was a massive surge in shoppers buying big-ticket items like appliances and electronics. People were scared of new trade tariffs scheduled for early 2026. While that gave Costco a huge sales bump in December, investors are now worried that those sales were just "borrowed" from the future. If everyone bought their new fridge in December to beat the tariff price hikes, what are they going to buy in March? That uncertainty creates downward pressure.
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The Membership Fee "Hangover"
We all remember the membership fee hike. In September 2024, the Gold Star fee went up to $65 and the Executive level hit $130. For a while, the stock surged because that’s basically pure profit.
Now, we’re seeing the "anniversary" of that change. While renewal rates are still incredible—hovering around 90% globally—the massive growth spurt from those initial fee increases is starting to level off. Some analysts, like those at Mizuho Securities, have pointed out that while younger members are signing up at record rates, they also tend to "churn" or cancel more often than the older, loyal Costco crowd.
- Global Renewal Rate: Slipped slightly to 89.7% in Q1 2026.
- Executive Members: Now make up about 27% of the total base.
- The Problem: Chasing "promotional" members can dilute the rock-solid stability investors usually crave from the Costco model.
Executive Selling and the "Retirement" Factor
It’s also worth noting some internal movements. In January 2026, news broke that senior executive Russ Miller sold off a chunk of shares ahead of his retirement in February. When top-level insiders sell, even for totally normal reasons like retirement, it can spook retail investors. It creates a "smoke and fire" situation where people assume the insiders know something we don't, even if it's just a guy wanting to enjoy his pension.
What Really Happened With the Dividend?
There was a lot of chatter about another "special dividend" in 2026. Costco has a history of occasionally cutting a massive check to shareholders (like the $15 per share they did in early 2024).
But management has been quiet. While they did announce the regular quarterly dividend of $1.30 per share recently, the lack of a "special" payout has left some income-focused investors feeling a bit grumpy. Without that extra carrot on a stick, the stock lacks a short-term catalyst to move higher.
Is the Drop a Warning or an Opportunity?
Let’s be real: Costco’s fundamentals are still insane. They are opening about 30 new warehouses a year. Their Kirkland Signature brand is practically a cult at this point. And their e-commerce—once a weak spot—surged over 20% in the last quarter.
The stock is dropping because it got too far ahead of itself. It’s a classic "reset." Many institutional firms, like Wells Fargo, have lowered their price targets recently (some to around $900), not because the company is bad, but because they think the market was overpaying.
Actionable Insights for Investors
If you're holding Costco or thinking about buying the dip, here is how to navigate the current noise:
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- Watch the "Comps": Look at the monthly "Comparable Sales" reports. If they stay above 6% without the help of gas prices, the business is healthy regardless of the stock price.
- Ignore the "Tariff Noise": The inventory build-up ($21.1 billion in Q1) looks scary, but it’s a strategic move to keep prices low while other retailers get hit by shipping spikes.
- Check the P/E Ratio: If the stock continues to slide and the P/E ratio gets closer to 35 or 40, historically, that has been a "buy" signal for long-term holders.
- Monitor Membership Tiers: The real growth is in Executive Members. If that number keeps growing by 9% year-over-year, the "profit engine" is still working perfectly.
At the end of the day, Costco is a slow-and-steady giant. The current volatility is a reminder that even the best companies can't outrun their own valuation forever. It’s a cooling-off period, not a collapse.
For the long-term investor, the focus should remain on the warehouse floor, not the ticker tape. As long as the rotisserie chickens are selling and the membership renewals stay near 90%, the underlying engine of the company remains one of the strongest in the retail world.