Why Costco's Stock Disconnection from Strong Earnings and Growth Makes It a Contrarian Buy for 2026

The stock market often rewards what it understands and punishes what it fears. For Costco Wholesale Corporation (COST), this dynamic has created a striking dislocation between its valuation metrics and its operational performance. As of December 2025, , more than double the 20.9 average for the Consumer Defensive sector according to fullratio.com, and its PEG ratio of 4.12 suggests the stock is overvalued relative to its 11.74% earnings growth rate according to stock-analysis-on.net. Yet, the company's fundamentals-8.1% year-over-year revenue growth in FY 2025 Q4 according to investing.com, according to investing.com, according to gurufocus.com-paint a picture of a business thriving in a challenging retail environment. This disconnect between price and performance creates a compelling case for contrarian investors in 2026.

Valuation Dislocation: A Tale of Two Narratives

Costco's valuation metrics defy traditional logic. according to stern.nyu.edu. Meanwhile, according to stock-analysis-on.net. These figures imply that investors are paying a premium for Costco's brand strength and operational efficiency. However, according to stock-analysis-on.net. This dislocation suggests that while Costco's fundamentals are sound, the market is overpaying for its stability, creating a risk of mean reversion.

Yet, this overvaluation is not a sign of weakness but a symptom of broader retail sector pessimism. As 's tariff policies and inflationary pressures weigh on consumer spending, Costco's private-label Kirkland Signature brand and supply chain optimizations have insulated it from margin compression according to investing.com. The company's ability to grow revenue by $86.16 billion in FY 2025 Q4 according to investing.com according to gurufocus.com underscores its competitive moat. The market's reluctance to fully price in these strengths-despite a 12-month analyst price target of $1,027.75 (11.47% upside) according to investing.com-hints at an undervaluation of Costco's long-term resilience.

Market Sentiment: Optimism Amid Volatility

Investor sentiment for Costco in Q4 2025 was a study in contrasts. While the stock dipped 0.3% after-hours following a $4.50-per-share earnings beat according to investing.com, the broader retail sector saw a 10.5% rally over the preceding month according to finance.yahoo.com. Analysts remain cautiously optimistic, with 32 of them assigning a "Moderate Buy" rating and a consensus price target of $1,057 according to finance.yahoo.com. This optimism is grounded in Costco's strategic expansion plans-35 new warehouses in 2026 according to investing.com-and its ability to drive comparable sales growth despite macroeconomic headwinds.

The dissonance between short-term volatility and long-term confidence is key. according to investing.com lags behind its historical outperformance, suggesting the market is discounting future growth. However, according to investing.com-demonstrates that its growth engine remains intact. For , this represents an opportunity to capitalize on the market's myopia.

The Contrarian Case for 2026

The case for Costco as a 2026 contrarian buy rests on three pillars:
1. Mean Reversion Potential: Costco's P/E and PEG ratios are outliers relative to its 10-year averages according to fullratio.com, creating a statistical likelihood of correction.
2. Strategic Resilience: The company's focus on private-label products and supply chain efficiency positions it to outperform peers as inflation normalizes according to investing.com.
3. Analyst Consensusaccording to investing.com, offering a margin of safety for patient investors.

While the current valuation appears stretched, Costco's ability to generate consistent cash flow and expand its global footprint mitigates downside risk. The market's fixation on short-term macroeconomic noise has obscured the company's durable competitive advantages, making it an attractive candidate for investors willing to bet on a return to fundamentals.

Conclusion

Costco's stock dislocation is not a flaw but a feature of a market struggling to balance its admiration for the company's resilience with its fear of a broader retail downturn. For investors with a 2026 horizon, the combination of undervalued growth, strong operational execution, and a favorable analyst outlook creates a compelling case to overweight Costco. As the retail sector navigates uncertainty, Costco's ability to adapt and thrive may yet prove that the market's skepticism is its greatest opportunity.