Rethinking Why Costco Stock Declined: Does the Bearish Case Really Hold Water?

Costco Wholesale shares took a sharp hit recently when Roth Capital downgraded the stock from neutral to sell, setting a $769 price target on shares trading around $852. The bank cited what it views as troubling operational metrics, including decelerating same-store sales growth, slowing member additions, and weakening membership renewals. But before accepting the bearish narrative at face value, it’s worth examining whether the full picture supports this pessimistic outlook.

The Case Against Costco: What Roth Capital Sees

Roth Capital’s downgrade highlights legitimate concerns in an increasingly competitive landscape. As the critical holiday shopping season kicks into gear, the analyst warned of intensifying pressure from major retail rivals, particularly Walmart and BJ’s Wholesale, both vying for consumer dollars. The deceleration in Costco’s traditional growth drivers—member additions and renewal rates—suggests the company may be facing genuine headwinds as competitors sharpen their strategies and market saturation increases in mature regions.

On the surface, these concerns warrant attention. At a P/E ratio of 47 times earnings, Costco’s valuation leaves little room for disappointment. The case for caution appears mathematically sound.

The Consumer Spending Paradox: Reading Between the Data

However, recent consumer sentiment data tells a more nuanced story that challenges the pure bearish thesis. According to the CNBC All-America Economic Survey, 41% of Americans plan to reduce holiday spending this year, citing inflation as the primary culprit. Roughly 46% of budget-conscious shoppers blame rising prices, and 61% report that prices are climbing faster than their wages—a squeeze hitting lower-income households especially hard.

At first glance, this trend appears negative for all retailers. Yet the data reveals a critical inflection point often overlooked in the downgrade narrative: while overall per-shopper spending hovers around $1,016, consumers with higher budgets are planning to spend substantially more, reaching approximately $1,199. Crucially, CNBC’s research shows that these premium spenders gravitate toward discount-focused retailers like Costco.

Why Costco’s Business Model May Weather the Storm

This dynamic could prove advantageous for Costco precisely because of its distinctive operating structure. Unlike traditional retailers that depend primarily on merchandise markups for profit, Costco generates the majority of its earnings through membership fees. This model insulates the company from pressure on product margins and creates a different competitive equation than Roth’s analysis implies.

When consumers face inflation-driven budget pressures, bargain-hunting becomes more rational. Meanwhile, affluent consumers seeking value gravitate toward membership-based wholesale clubs. Both cohorts represent Costco’s core constituency. The convergence of rising price sensitivity among budget-conscious shoppers and value-seeking behavior among high-income consumers could actually position Costco favorably during economically uncertain periods.

Weighing the Investment Case: Valuation vs. Opportunity

The counterargument to Roth’s downgrade is not that Costco stock is undervalued—at 47 times earnings, it commands a premium that leaves zero margin for execution stumbles. Rather, the argument rests on whether the growth deceleration truly reflects structural weakness or merely temporary cyclical softening in a maturing business that still possesses pricing power and demographic tailwinds.

Historical precedent offers perspective. The Motley Fool’s investment research, which identified Netflix as a buy on December 17, 2004, saw that $1,000 investment grow to $513,353. Similarly, investors who purchased Nvidia on April 15, 2005, on the platform’s recommendation watched a $1,000 stake balloon to $1,072,908. Stock Advisor’s overall track record shows a 965% average return versus 193% for the S&P 500—demonstrating that identifying quality businesses through market dislocations can generate exceptional returns.

The question for Costco investors isn’t whether Roth Capital’s concerns are entirely baseless; rather, it’s whether those concerns are already priced into a stock trading near all-time highs, and whether the structural advantages of Costco’s membership model position it to capture a disproportionate share of holiday spending from both economically stressed and affluent shoppers.

Ultimately, while the downgrade merits consideration as one analytical input, the broader consumer environment may present an opportunity rather than the warning Roth suggests.