Costco Wholesale Corp. NASDAQ: Cost reported its Q3 2026 financial results after the market closed on May 28, and at first glance, it looks like the company produced another stellar quarter.
But market reaction following the report was muted. The stock fell 4% shortly after opening bell the next day, which seems a no-brainer for a company that has posted cash collections and may have the ability to recoup tax money in the near future.
As always, digging deeper into the numbers reveals the reason for the reaction. While Costco’s long-term growth story remains intact, it’s becoming increasingly difficult to justify paying 50x earnings for the stock.
Consumers Tired of Discounts Turn to Costco’s Value Proposition
First, the good news.
Costco announced record earnings in Q3 2026 fiscal year, reporting $69.15 billion in sales and total revenue of $70.53 billion when including membership fees, beating consensus of $69.68 billion. Earnings per share (EPS) of $4.93 was slightly below the $4.98 expected by analysts. Overall membership growth increased by 4.1%, and the executive tier premium program now has 41.2 million members.
Membership fees are the real engine of Costco’s margin growth, so these numbers need to continue to rise to offset merchandise and fuel costs.
Same-store sales, the key metric that drives growth from new store openings, rose 9.8% year-over-year (YOY), the company’s highest number in two years. The war in Iran, which has driven up fuel prices for years, has led to an increase in membership and same-store sales.
Costco Wholesale Dividend Cost
- Dividend Yield
- 0.61%
- Annual Assignments
- $5.88
- Dividend Raise Record
- 22 years
- 5 Year Annualized Profit Growth
- 12.75%
- Dividend payout ratio
- 30.58%
- Late Refund Payment
- May. 15
COST cost history
Wholesale club retailers such as Costco and BJ’s Wholesale Club Holdings Inc. NYSE: BJ they often benefit from gas prices as they mark their prices between 10 and 30 cents lower than private gas stations.
Gasoline prices are the most visible pressures on consumers, and price increases often tempt consumers to “bite the bullet” and sign up for a wholesale club membership.
The numbers support this thesis: gas volumes from the last five weeks of the quarter were among the five highest totals the company has reported over the same period.
Costco expects to open 26 new warehouses during fiscal 2026, and is eyeing more than 30 openings in the coming years.
Earnings investors were also disappointed as the company raised its dividend by 13% to $1.47 per share, and there is reason to believe that a special dividend may be in the works this year.
Overall, another solid earnings report, but not quite what investors were hoping for.
Pricey Valuation Overlooks Mixed Earnings Picture
The biggest red flag at Costco has always been valuation. Investors are paying a tech-sector multiple to a retailer with margins more akin to those of a grocery store than a semiconductor foundry.
A few things from the report explain the less-than-enthusiastic reaction:
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Gas Spike Oversells Same-Store Sales: The 9.8% figure looks impressive on its face, but it drops to a more modest 6.6% when adjusted for gas and currency effects. The adjusted figure is higher than the “real” number, as it removes variables such as fuel inflation and only counts additional units sold. 6.6% is a middle-of-the-pack result compared to the previous two years, so the headline number did not contribute to the stock’s reaction.
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Low Earnings Hit Expensive Stocks: When you factor in the gap between headline and same-store adjusted sales and the slight EPS miss, there isn’t much negative to celebrate in this report. The stock is already in a constant upward cycle and trades at around 47x earnings, so a drop in earnings is needed to create a big upside move. Fiscal Q3 2026 will qualify as “good but not great,” which won’t move the stock higher.
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Tax Return Uncertainty: Another potential trigger for Costco is the Trump administration’s IEEPA tax reform, but the reimbursement process has been abysmal. Additional temporary taxes have been levied in the meantime, and the administration is still struggling with uncertainty in this area. Costco said it has begun filing claims with US Customs and Border Protection and expects the refunds to be approved regularly, but executives also noted that the refund process depends on the timing of the refund and the progress of the case.
Chart Shows Declining Momentum and Possible Consolidation Period
Shares of Costco are still up more than 10% year-to-date (YTD), but have spent much of the past few months in a consolidation pattern that doesn’t seem ready to be broken. Most of the 2026 stock’s gains were accumulated in the first few weeks of the year, long before the Iran war was on any investor’s or analyst’s radar. But the share price has been stuck since the end of January, bouncing in a tight range between $950 and $1050.
The stock’s recent new high of $1094 on May 19 was quickly followed by six consecutive red sessions, and now the Relative Strength Index (RSI) has dipped into the bearish zone below 50. Long-term momentum remains in place thanks to January’s Golden Cross, which maintained the 50-day moving average above the 200-day moving average. However, investors can expect more volatile, diversified trading in the short term.
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