Is Costco Stock (COST) a Sell or a Buy in a Downturn? A Contrarian Take on Defensive Retail

The recent 4.5% pullback in Costco Wholesale Corporation (COST) has sparked debate among investors, particularly after Roth Capital downgraded the stock to Sell from Neutral in late December 2025. While the bearish call highlights concerns about slowing growth and valuation, a deeper analysis of Costco's fundamentals-its resilient membership model, strong November sales, and competitive positioning-suggests the stock may represent a compelling contrarian opportunity in a defensive retail sector.

Roth Capital's Downgrade: A Cautionary Signal or Overreaction?

Roth Capital's downgrade cited weakening business metrics, including fading membership renewal rates, slowing paid membership growth, and decelerating comparable traffic. The firm also pointed to intensifying competition from rivals like Walmart's Sam's Club and BJ's Wholesale. While these factors are valid, they must be contextualized against Costco's broader performance. For instance, the global membership renewal rate of 89.8% in 2025-though slightly down from prior years-still outperforms most retail benchmarks. Meanwhile, paid membership households grew by 5.2% to 81.4 million, and Executive membership surged to 38.7 million, or 47.7% of total paid members. These figures underscore Costco's ability to retain and upgrade its customer base, even amid macroeconomic headwinds.

The downgrade's emphasis on valuation is also worth scrutinizing. Costco's stock had traded at a premium to peers for years, but the 4.5% pullback following the downgrade has brought its price-to-earnings (P/E) ratio closer to historical averages. For long-term investors, this correction may present an entry point, particularly given Costco's recurring revenue model and low debt profile.

November Sales and Membership Dynamics: A Tale of Resilience

Costco's November 2025 net sales of $23.64 billion-a 8.1% year-over-year increase-highlight its enduring appeal. Membership fee income, a critical component of its business, rose 14% in the fourth quarter of fiscal 2025, driven by fee hikes in the U.S. and Canada, as well as a larger membership base. The company's strategic shift to higher-tier Executive memberships (now 47.7% of total paid members) has further bolstered fee revenue.

However, the slight decline in global renewal rates to 89.8% raises questions about long-term retention. Costco is addressing this through initiatives like auto-renewal options and enhanced member benefits. These efforts, combined with the company's focus on value-driven offerings, position it to weather economic downturns. As noted by a report from Yahoo Finance, Costco's membership model has proven resilient during inflationary periods, with households increasingly favoring bulk purchasing to offset rising costs.

Competitive Positioning: Walmart's Rise vs. Costco's Endurance

Walmart's dominance in 2025 has outpaced Costco in stock price and investor sentiment, driven by its pivot to high-margin ancillary businesses like digital advertising (via Walmart Connect) and subscription-based services (Walmart+). Walmart's omnichannel strategy-leveraging its vast store network for fulfillment and integrating AI-driven supply chain optimizations-has allowed it to capture younger, tech-savvy consumers.

Costco, by contrast, has prioritized refining its core warehouse model. While its digital strategy is less transformative than Walmart's, it has effectively supported its membership-driven ecosystem. For example, Costco's app-based checkout and same-day delivery options have improved convenience without diluting its value proposition. BJ's Wholesale, a smaller competitor, has also gained traction with curated private-label products and regional execution but operates with narrower margins.

The key distinction lies in Costco's recurring revenue model. While Walmart's diversified ecosystem offers growth potential, Costco's membership fees provide a stable cash flow stream that is less susceptible to cyclical downturns. This dynamic is particularly relevant in 2025, as consumer behavior shifts toward value-oriented shopping.

Inflation and Consumer Behavior: A Tailwind for Costco's Value Model

The broader retail landscape in 2025 is defined by volatile consumer behavior and inflationary pressures. However, Costco's business model is uniquely positioned to benefit. As grocery inflation and gas prices decline, households are trading down from premium retailers and restaurants to cost-effective alternatives like warehouse clubs. Data from The Globe and Mail underscores this point: Costco's membership base grew by 5.1% to 145.9 million cardholders in 2025, with Executive memberships rising 9.1% year-over-year. These figures suggest that even in a downturn, Costco's value proposition remains compelling.

Is the 4.5% Pullback a Buying Opportunity?

From a contrarian perspective, the recent pullback in Costco's stock price may be overblown. Roth Capital's downgrade reflects short-term concerns about growth sustainability, but Costco's long-term fundamentals remain intact. Its membership model, recurring revenue streams, and defensive positioning in the retail sector provide a buffer against macroeconomic volatility.

For investors seeking defensive plays, Costco's low debt load, consistent cash flow, and pricing power in a value-driven market make it an attractive candidate. While Walmart's innovation-driven growth model may outperform in the near term, Costco's resilience during downturns-evidenced by its strong November sales and membership growth-positions it as a long-term winner in a cyclical retail environment.

Conclusion

Costco's recent downgrade by Roth Capital highlights valid concerns but overlooks the company's enduring strengths. In a downturn, its membership-driven model, stable cash flows, and value-oriented appeal make it a defensive play worth considering. The 4.5% pullback, while painful for short-term traders, may represent a buying opportunity for long-term investors who recognize Costco's ability to navigate economic headwinds. As the retail sector evolves, Costco's focus on retention, pricing, and value will likely continue to outperform in a world where "more for less" remains king.