Why Costco Stock Was Pulling Back Today

Shares of Costco Wholesale (NASDAQ: COST) were heading lower Friday after its fiscal fourth-quarter revenue came in slightly below estimates.

Ahead of Thursday afternoon's report, the warehouse retailer was trading at a lofty valuation, so a pullback on its slight miss wasn't a surprise.

As of 10:51 a.m. ET Friday, the stock was down 1.5% after having fallen by as much as 3% earlier in the session.

Image source: Costco.

Costco is solid, but it trades at a premium valuation

In the period, which ended Sept. 1, Costco continued to deliver steady growth. Comparable sales were up by 6.9% excluding the impacts of gas prices and changes in currency exchange rates.

Revenue rose by just 1% to $79.7 billion, but it is important to note that this year's fiscal Q4 was 16 weeks long, while 2023's was 17 weeks. The top-line result came up short of analysts' consensus estimate of $79.97 billion.

Even with its near-flat revenue growth, Costco was still able to boost its gross margin from 11.9% to 12.4%. Operating income jumped by 9.4% to $3.04 billion, and earnings per share rose from $4.86 to $5.29, beating the consensus estimate of $5.08.

On the earnings call, management said that recent improvements such as adding membership card scanners to speed up the checkout process are starting to pay off.

What's next

Costco is one of the most reliable and consistent retailers in the industry, and its business model has stood the test of time. However, its stock is as pricey as it has ever been, trading at a price-to-earnings ratio of 53.

While the business continues to look rock solid, investors should temper their expectations for further share price growth, as the current valuation implies high expectations.

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Jeremy Bowman 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.