Costco Beats Wall Street Estimate-- Here is Why Stock Falls?

Sep 26 - Costco COST shares slipped more than 2% Friday despite the retailer delivering a stronger-than-expected fourth quarter.

The pullback reflects investor caution over slowing U.S. growth and Costco's premium valuation, even as its results topped forecasts.

For the quarter ending in August, earnings came in at $5.87 per share, up 11% from a year ago, on revenue of $84.4 billion, an 8% increase. Comparable sales in the U.S. rose 5.1%, ahead of Walmart's WMT 4.6% and sharply better than Target's TGT 1.9% drop. Membership income climbed 14% to $1.7 billion, while e-commerce sales advanced 13.6%, underscoring Costco's ability to expand beyond its stores.

Still, the pace of growth has moderated. U.S. comp sales slowed from 8.3% in Q2 to 6.6% in Q3 and 5.1% in Q4. At the same time, Costco trades at 52x earnings and 57x free cash flow, leaving its cash flow yield at just 1.8%. By comparison, Amazon (AMZN) shows faster top-line growth and broader exposure to high-margin businesses at a lower multiple.

That mix of slowing momentum and a lofty price tag explains why investors pulled back after an otherwise solid report.