Costco Wholesale (COST -0.65%) stock has cooled off since hitting an all-time high of $787 in March. The stock is currently sitting at $702, or 8% below the previous peak.
Analysts at Gordon Haskett are cautious on several top retail stocks, including Costco. The firm is still positive on the shares but lowered its rating from "buy" to "accumulate" with a price target of $775 -- about 11% above the current share price.
Why analysts are cautious on Costco
Gordon Haskett is still positive on the direction of Costco's business, but near-term uncertainties are starting to creep into the picture, such as rising gas prices, a shorter holiday shopping season than last year, and the uncertainty around the upcoming election.
Out of these, the increase in gas prices is probably the biggest risk to Costco's sales growth, since the company already saw a significant deceleration in growth in 2022 amid high inflation.
It's natural for Wall Street analysts to look for reasons to be cautious when the stock has had a historic run. Costco's earnings per share are growing at double-digit rates, which has pushed the stock up 41% over the last 12 months.
But the analyst is right to express caution at these lofty highs. Whether looking at price-to-earnings or price-to-sales, the stock is near the most expensive valuation in its trading history. Its P/E of 46 is the highest since 2000.
In that context, the analysts might be doing investors a favor to dial back the optimism. Costco's growth will eventually send the stock to the analysts' price target, but it may take a while for the company's earnings growth to catch up to the expectations implied in the stock's high valuation.
