Costco (COST 1.01%) has been a fantastic investment, as the stock has climbed 61% in the last three years (as of Sept. 26), a gain that exceeds the performance of the Nasdaq Composite Index. However, it has lagged the broader index in 2023. 

Investors are probably hoping for a strong finish to this year, possibly setting their sights on the next key level of $600 per share. This price implies an 8% gain from where we are today, which is certainly possible.

Let's take a look at potential catalysts that could drive this retail stock to new heights. It's also best not to forget about lingering headwinds that add some uncertainty for shareholders.

Costco is facing a slowdown 

In the latest fiscal year (2023 ended Sept. 3), Costco's same-store sales were up just 3.3% in the U.S., where the vast majority of the company's warehouses are located. This was a much slower rate of growth than in the previous two years. While groceries remain a strong shopping category, management pointed to weaker demand for bigger-ticket items, like furniture and electronics. 

The company beat Wall Street estimates, so maybe this can help drive the stock higher. A better-than-expected fiscal 2024 first-quarter financial update, which Costco will announce sometime in December, could give the stock a boost.

Nonetheless, it's easy to accept the fact that this is a superb business. The customer base keeps expanding, as evidenced by the 71 million membership households out there, a figure that was up roughly 8% year over year. Selling high-quality merchandise at low prices will always be in demand.

Most investors know about Costco's attractive qualities. That's why its stock has been such a huge winner. Even so, there are still some developments that could provide upside to the equation.

The leadership team could announce another special dividend. In December 2020, shareholders received $10 as a one-time payout. Additionally, Costco could decide to implement price hikes for its memberships, a move that could expand operating income. 

The macro environment matters 

Warren Buffett, who many consider to be the greatest investor ever, doesn't spend too much time thinking about the macro situation when he's managing Berkshire Hathaway's gargantuan public equities portfolio. He believes that things like interest rates and unemployment are all unknowable. The thinking is that great businesses should be able to handle whatever the economy throws at them.

This is the right approach, in my opinion. However, in the short term, which is what we're focused on right now, the uncertain economic climate is exactly what can prevent Costco from reaching $600 per share by year-end. 

If the Federal Reserve decides to hike rates at one of its final two meetings in 2023, financial markets could react negatively. Moreover, if a severe recession -- or even a mild one, for that matter -- finally becomes a reality like many experts have been talking about for a while now, it would add heightened pessimism to the mix, especially for a consumer-focused retail stock like Costco.

Making matters even worse is Costco's sky-high valuation. Shares currently trade at a trailing price-to-earnings (P/E) multiple of 41. For a mature enterprise like this, that's a steep price to pay. The valuation is 24% more expensive than its average over the past decade. 

An above-average P/E ratio increases downside risk, in my opinion. If Costco reports less-than-stellar financial results for its fiscal 2024 first quarter, it could seriously pressure the stock as the year closes.

This is a wonderful business, so I won't be surprised if it overcomes these potential headwinds and ends 2023 above $600 per share. However, the stock could also finish the year below its current level. Investors should accept that both outcomes are fully on the table.