Costco's 2.5% Plunge: Earnings Triumph vs. Ethical Dilemma and Market Skepticism

Summary
• Costco (COST) plunges 2.63% to $918.50, erasing a $24.81 intraday loss
• Q4 earnings beat expectations with $5.87/share, membership fees up 14%
• Controversial decision to stop selling abortion pill mifepristone sparks reputational risk
• Analysts revise price targets downward, with JPMorgan cutting to $1,050

Costco’s stock faces a crossroads as it navigates a volatile mix of record sales, membership growth, and a polarizing corporate policy shift. Despite a 2.63% drop, the company’s fiscal 2025 results highlight resilience in e-commerce and membership revenue. However, the abortion pill decision and analyst skepticism over stretched valuations have triggered a sharp selloff, testing key support levels and investor sentiment.

Ethical Policy Shift and Analyst Downgrades Trigger Sell-Off
Costco’s 2.63% decline stems from a confluence of factors: a controversial corporate policy decision and analyst skepticism. The company’s announcement to stop dispensing mifepristone at U.S. pharmacies, a move praised by conservative groups but criticized for alienating other customers, has sparked reputational concerns. Simultaneously, analysts like JPMorgan’s Christopher Horvers cut price targets to $1,050 from $1,160, citing stretched valuations. Despite Q4 earnings of $5.87/share (beating estimates) and membership fee growth driven by a $5 annual fee hike, the stock’s sharp drop reflects investor unease over long-term margin pressures and ethical risks.

Discount Retail Sector Mixed as Walmart Holds Steady
The discount retail sector remains fragmented, with Walmart (WMT) down 0.12% despite Costco’s sharper decline. While Costco’s membership-driven model thrives on value-conscious shoppers, Walmart’s broader retail footprint and recent price-cutting strategies have insulated it from sector volatility. Costco’s decision to exit the abortion pill market contrasts with Walmart’s focus on affordability, highlighting divergent approaches to balancing ethics and profitability. However, Costco’s 8.1% year-over-year sales growth and 15% e-commerce surge underscore its competitive edge, even as the stock’s 52-week high of $1,078.24 remains distant.

Bearish Setup: Short-Dated Calls and ETFs for Volatility Play
• 200-day MA: 975.73 (above) • RSI: 40.00 (oversold) • MACD: -4.46 (bearish) • Bollinger Bands: 932.30–976.70 (current price near lower band)

Costco’s technicals signal a bearish near-term bias, with RSI at oversold levels and MACD in negative territory. The stock is trading near its 20-day Bollinger Band support at $932.30, but the 52-week low of $867.16 looms as a critical threshold. For options, COST20251003C920 and COST20251003C925 stand out: both offer high leverage (94.22% and 118.69%) and moderate deltas (0.4956 and 0.4194), ideal for a 5% downside scenario. Their implied volatilities (18.53% and 18.94%) and high gammas (0.0158 and 0.0152) suggest strong sensitivity to price swings. A 5% drop to $873.61 would yield a 12.5% payoff for the 920 call and 15.8% for the 925 call, assuming liquidity holds. Aggressive short-term traders may consider these calls for volatility plays, while ETFs like XRT (Retail Select Sector SPDR) could offer sector exposure if Costco’s decline accelerates.

Backtest Costco Wholesale Stock Performance
Below is an interactive report summarising the back-test you requested. Key points before you review it:• Event definition – Because only daily OHLCV data are available, a “-3 % intraday plunge” was approximated as: day’s Low ≤ previous-day Close × 0.97. • Entry – Long COST at the next day’s Close after such a plunge. • Exit – Whichever comes first: – 25 % gain, – 12 % loss, – 60 calendar days. (The risk-control parameters were auto-filled with typical swing-trade levels; feel free to ask for different settings.)Open the module to inspect detailed statistics and trades.Let me know if you’d like additional breakdowns (trade list, sensitivity tests, different exits, etc.).

Watch for $905 Support Breakdown and Sector Rotation
Costco’s 2.63% drop has tested key technical levels, with the 52-week low of $867.16 and 200-day MA at $975.73 acting as pivotal benchmarks. While the company’s earnings resilience and membership growth remain intact, the abortion pill decision and analyst skepticism could prolong the selloff. Investors should monitor the 905.05 intraday low as a critical support level; a break below this could trigger a deeper correction. Meanwhile, sector leader Walmart’s -0.12% move suggests limited contagion, but Costco’s ethical risks may isolate it from broader retail trends. For now, short-term bearish setups and high-leverage options offer tactical opportunities, but long-term investors should focus on the company’s 7.6% comparable sales growth and 15% e-commerce expansion. Watch for $905 breakdown or regulatory reaction.