Costco Stock Has Fallen despite Beating Q3 Estimates




Costco (COST) posted better-than-expected third-quarter results after the markets closed on May 30. Costco’s sales and earnings, for the three months ending May 12, beat analysts’ expectations. However, Costco stock fell ~1.4% in after-hours trading due to uncertainty about tariffs and its rich valuation.

We’ll have to see how tariffs impact US retailers’ financials in the coming quarters. However, the prices are expected to rise and could hurt Costco’s traffic. Costco’s strong business model and efficient execution warrant its high valuation compared to its peers. However, investors don’t seem willing to pay ~29.0x Costco’s forward EPS amid challenging market conditions.

In the third quarter, Costco continued to report industry-leading comps growth due to its higher traffic and ticket size. The membership fee income rose due to high renewal rates.

Costco’s bottom line continued to grow at a double-digit rate, which reflected higher comps, cost-savings, a lower effective tax rate, and share buybacks.

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Costco’s YTD stock performance

So far, Costco stock has risen 18.6% this year as of May 30. Strong comparable sales and double-digit EPS growth in the past several quarters supported the upside in Costco stock. In comparison, Target (TGT) and Walmart (WMT) shares are also benefiting from their impressive comps and EPS growth. Target and Walmart stocks have risen 21.6% and 9.7% on a YTD (year-to-date) basis.


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