Sell your Costco stock, this analyst says

Roth Capital Markets analyst Bill Kirk downgraded Costco (Costco Stock Quote, Chart, News, Analysts, Financials NASDAQ:COST) to “Sell” from “Hold” on Dec. 15 and lowered his 12-month price target to US$769 from US$906, arguing that weakening underlying metrics and intensifying competition leave the stock vulnerable to a valuation reset despite a first-quarter earnings beat.

Kirk said Costco’s recent results mask a deterioration in several key operating indicators, including declining renewal rates, slowing paid-member growth and decelerating traffic trends. Global renewal rates slipped to 89.7% in the quarter, with U.S. and Canada renewal rates falling to 92.2%, down from recent highs. Paid membership growth also slowed sharply, with net additions of roughly 400,000 quarter-over-quarter, well below the more than one million additions seen in prior quarters.

Adjusting for new warehouse openings, Kirk said paid membership growth may have turned negative. Comparable traffic growth decelerated to 3.1% year-over-year, while third-party data from Sensor Tower shows Costco’s app downloads have fallen sharply since Black Friday.

At the same time, Kirk said competitive pressure in warehouse retail is intensifying. Walmart has significantly increased investment in Sam’s Club after years of underinvestment, accelerating new store openings and raising capital expenditures to US$1.2-billion in fiscal 2025, with improvements translating into stronger customer satisfaction metrics. BJ’s Wholesale Club has also accelerated expansion, entering new markets and materially lifting capex, narrowing the operational and experiential gap with Costco.

Kirk also pointed to structural headwinds that he believes are underappreciated by investors, including declining household sizes and delayed household formation in the U.S., which reduce demand for bulk purchasing formats. He said these pressures were temporarily obscured during the pandemic but are now re-emerging.

Against that backdrop, Kirk said Costco’s valuation remains stretched. The shares trade at roughly 27× EV/NTM EBITDA, more than one standard deviation above the 10-year average, and at 43× NTM earnings, well above historical norms. He argued that with key metrics weakening and competition rising, even modest execution misses could drive a meaningful re-rating.

“Costco risk skews heavily to the downside,” Kirk said.

Roth trimmed near-term estimates, modelling second-quarter fiscal 2026 revenue of US$66.6-billion and EPS of US$4.32, and lowered fiscal 2027 assumptions to reflect slower growth. Kirk now forecasts Costco will generate US$14.45-billion in Adjusted EBITDA on US$292.4-billion of revenue in fiscal 2026, improving to US$15.73-billion of EBITDA on US$302.6-billion of revenue in fiscal 2027.

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