Costco Beat Earnings Expectations in Q1. Here's Why It Could Still Struggle in 2026.

Costco Wholesale (NASDAQ: COST) has been a top retail stock to invest in for multiple years. Although its warehouses require memberships, that hasn't deterred customers, even amid rising inflation. Renewal rates are often around 90%, signifying strong continued demand.

Recently, the company posted strong earnings numbers, which yet again beat expectations, as sales and profits continued to be strong. The business has been doing incredibly well.

But despite the strong numbers, the retail stock is down 6% this year. Here's why it can fall even further in 2026.

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Why Costco's stock didn't rally after earnings

An earnings beat is great news for Costco, as it shows that the company is doing well even amid challenging economic conditions. That shouldn't come as much of a surprise, however, as during the pandemic and even with inflation surging in recent years, the business had continued to do well. Expectations are high for Costco to outperform the average retailer, which is why beating top- and bottom-line estimates this past quarter was not enough to send the stock rallying.

The company grew its net sales by more than 8% to just under $66 billion for the first quarter of fiscal 2026, which ended Nov. 23, 2025. It was par for the course for the company. But unfortunately, without more of a catalyst than just solid single-digit revenue growth, there just may not have been an overwhelming reason for new investors to buy the stock, given its high valuation.

Is Costco's stock simply too expensive?

Even if a business is performing well and beats earnings expectations, that may not be enough to result in a rising share price. That's because a stock theoretically includes all available information about the business, which includes any guidance and expected future performance. And the higher the stock trades in relation to its earnings and the larger the premium is, the more challenging it becomes for the company to do well enough to justify an increase in its share price. It effectively becomes priced to perfection.

Currently, Costco's stock is trading at a price-to-earnings multiple of 46, which is an incredibly high premium for a retailer that's growing its business in the single digits. For a while, investors had been willing to pay higher premiums for Costco's stock, but as worries about the economy have grown, so too has the concern that Costco's stock may be overpriced.

The company also didn't provide any guidance following its most recent quarter to suggest how strong demand is, effectively leaving it to investors to try to predict how the business may perform in future quarters. However, even if a company is growing in double digits, it may be hard to justify paying close to 50 times earnings for the business unless it's involved in some high-powered growth opportunities in tech. A decline in Costco's stock has arguably been well overdue.

Is Costco's stock worth buying today?

Without more significant growth opportunities ahead, it could be another rough year for Costco stock in 2026. If, however, you're looking for an investment that you're willing to hang on to for at least five years, then Costco can still be an attractive buy, given its excellent fundamentals. The business is sound, and the only real problem is that its valuation doesn't provide investors with any margin of safety in the event that economic conditions worsen and its growth rate slows down.

If you're looking for a solid blue chip stock to hang on to for the long haul, Costco can be a great addition to your portfolio, but you will need to brace for the possibility of more of a decline in the short term.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.