In most cases, a falling stock reflects growing concern over the underlying company's future. And broadly speaking, the bigger the pullback is, the greater the worry. Sell-offs of 20% or more -- the definition of a full-blown bear market -- are, of course, especially concerning.
Sometimes, though, the market gets it wrong, dragging a stock lower for all the wrong reasons that aren't apt to last. In these moments, smart investors see opportunity. The trick is simply figuring out when the market is getting it wrong or right.
With that as the backdrop, is Costco Wholesale (COST +1.10%) stock's 20% slide from its early-2025 peak a buying opportunity or a fair warning?
Image source: Getty Images.
A rather rough year
The weakness makes enough superficial sense. Although the membership-based warehouse retailer's fiscal Q2 revenue reported in March was better than expected, earnings of $4.02 per share fell short of analysts' estimates of $4.11. Its third-quarter numbers posted in late May included a same-store sales growth rate of 5.7% versus expectations of 6%.
Costco's fiscal fourth-quarter top and bottom lines both came in better than anticipated when reported in September, yet its same-store sales growth decelerated for a second consecutive quarter. Then, while its recently released Q1 numbers were healthy enough, the company opted to not declare a special one-off dividend payment that shareholders sometimes see around this time of year.
All of it, of course, took its toll.
Blame the economy, mostly. It's tough for everyone, especially inflation-sensitive consumer-facing businesses like retailing. Not only is Costco running into a growth headwind as a result, but even the club retailer's usually reliable membership renewal rate slipped last year following 2024's first membership price increase since 2017. It would also be naïve to pretend that competitors like BJ's Wholesale Club and Walmart's subscription-based delivery service Walmart+ aren't chipping away at Costco's long-standing dominance as well.
Given all this, it would be surprising if Costco shares hadn't recently made a new 52-week low.
NASDAQ: COST
Key Data Points
As the old adage goes, though, it's darkest before dawn. This lull may be your best chance in a while to step into a position in this reliably productive long-term holding.
Recovery on the horizon
Don't misunderstand. Consumers -- even relatively wealthy ones -- are still feeling constrained. This overhang may not abate for a few more quarters.
We're now one full year into Costco's downcycle though. The year-over-year comparisons should get easier from here.
It's also arguable that the investing crowd is so focused on the recent past's lackluster results that it's just not looking toward what's likely to be a brighter future sooner than later. For instance, while the Philadelphia Federal Reserve's recently revised outlook predicts slower-than-expected GDP growth within the United States for the current and upcoming quarter, it's actually now calling for better-than-expected growth later in the year ahead, with an acceleration of that growth rate in the cards for 2027.
The shallow but steady decrease in interest rates expected by the Federal Reserve's Open Market Committee during this stretch should help too, restoring the sort of consumerism that favors Costco's business model.
That being said, while the majority of this retailer's 921 stores are located within the economically lethargic United States, this isn't the only place it enjoys expansion opportunity. It's planning to build an additional five stores outside the U.S. before the end of the current fiscal year, where adjusted same-store sales growth was significantly stronger at 6.8% last quarter. Foot traffic and ticket-size growth are also better overseas, and quietly have been for several quarters now.
The point is, be careful of coming to sweeping conclusions about this retailer's future based on what seems like is happening within the U.S. in the present.
More than anything though, appreciate the fact that the sellers may have latched on to recent headlines too tightly, overshooting their target as a result by overlooking the likely temporary nature of the company's top challenges right now.
But is Costco stock a millionaire-making buy?
But the bigger question remains... could this stock that's now in bear market territory actual help you become a millionaire?
Yes, it can.
Just keep things in perspective. While COST shares have been a reliable long-term performer, they've never delivered ultra-rapid growth. This is a steady company with a stock that makes consistent -- even if not thrilling -- forward progress. This is likely to remain the case well into the distant future.
Consistent long-term gains, however, are a big part of becoming a millionaire. See, you want to feel confident sticking with a stock and reinvesting its dividends, even when it feels uncomfortable, knowing the underlying company will be back on track sooner than later.
To this end, as unbelievable as it might seem right now in light of its recent sell-off, adding its reinvested dividend to the mix has allowed Costco shares to easily outperform the S&P 500 (^GSPC 1.52%) over the course of the past decade.
COST Total Return Level data by YCharts
This might help: While Costco has suffered a downgrade and a lowered price target since posting its fiscal Q1 numbers earlier this month, most analysts are sticking with their bullishness. The stock's consensus price target still stands at $1,043.44, which is more than 20% above the ticker's present price. That's not a bad way to start out a new year.
