What happened
Shares of Costco Wholesale (COST 0.17%) were up more than 2% this morning after the company reported sales results for the month of January. Sales came in at $16.84 billion, up 6.9% over the same period last year. On a three-year growth basis, sales were up at a compound annual rate of 16.3%.
The market was up strongly at the time of writing, but Costco gave back most of its gains on the day. That could be due to the decelerating sales growth the company has been reporting in recent months.
So what
Analysts responded positively to the report, as Costco shows signs of maintaining year-over-year sales increases despite tough comparisons. A year ago, Costco reported January sales growth of 15.5% year over year.
But since the start of fiscal 2023, sales growth has been decelerating, with e-commerce sales falling each month since October.
Slowing growth could cause investors to shop around for more attractive opportunities as the markets show signs of sustaining a rally in the new year. Some growth stocks are up big year to date, so investors might be starting to rotate out of defensive stocks like Costco and into more exciting growth stories.
Now what
With growth decelerating, the stock might have limited upside in the near term. The key catalysts to watch would be a possible special dividend announcement or membership fee increase, especially to combat some of the inflationary costs the company has dealt with over the last year.
But it's uncertain if that would be enough to push the stock to new highs given its already-expensive price tag. At the current price, the stock trades at a high forward price-to-earnings (P/E) ratio of 36.8, which is almost double the average stock's P/E.
