Costco's Sudden 3.6% Plunge: What's Behind the Retail Giant's Turbulent Move?

Summary
• Costco (COST) slumps 3.6% intraday to $852.67, hitting a 52-week low of $852.19
• Roth Capital downgrades to Sell, citing valuation concerns and slowing membership growth
• Analysts split: UBS and Bernstein maintain Buy ratings despite bearish technicals
• Intraday range of $852.19–$887.49 highlights sharp volatility amid mixed earnings

Costco’s stock has plunged nearly 3.6% in a single trading session, driven by a combination of bearish analyst sentiment, valuation pressures, and unmet investor expectations. The retail giant’s failure to announce a special dividend—a move that historically buoyed its stock—has triggered a sharp correction. With the stock trading near 47x forward earnings, investors are now weighing whether the pullback presents an opportunity or a warning sign.

Special Dividend Absence Sparks Investor Discontent
Costco’s intraday selloff stems from unmet expectations around a special dividend, a practice the company has historically used to reward shareholders. Despite reporting strong Q1 earnings and upbeat guidance, the absence of a year-end payout—unlike in 2023, 2020, and prior years—disappointed investors. Roth Capital’s downgrade to Sell, citing elevated valuations and slowing membership growth, compounded the sell-off. The stock’s 47.3x P/E ratio, coupled with concerns over fading renewal rates and competitive pressures from Walmart’s Sam’s Club and BJ’s, has intensified scrutiny. While Costco maintains $15 billion in cash and a robust dividend yield of 0.59%, the lack of a special payout has shifted sentiment toward caution.

Retail Sector Mixed as Walmart (WMT) Holds Steady
The broader discount/wholesale sector remains fragmented, with Walmart (WMT) down just 0.2% intraday despite Costco’s sharp decline. Walmart’s Sam’s Club division has ramped up store openings and digital investments, intensifying competition for Costco’s membership base. However, Costco’s premium valuation (47x P/E vs. Walmart’s 27x EV/EBITDA) highlights divergent investor perceptions. While Costco’s earnings beat and 6.4% comparable sales growth outpace many peers, its valuation premium has become a liability amid slowing growth and rising discount retail activity.

Bearish Technicals and High-Leverage Options for Short-Term Bets
• 200-day MA: $957.52 (well above current price)
• RSI: 43.5 (oversold territory)
• MACD: -9.29 (negative divergence)
• Bollinger Bands: Price at $852.67, below the lower band ($870.44)

Costco’s technicals paint a bearish picture, with the stock trading below key moving averages and RSI signaling oversold conditions. The 52-week low at $852.19 aligns with the lower Bollinger Band, suggesting potential for further downside. For short-term traders, the most compelling options are those with high leverage and moderate delta to capitalize on volatility. Two top picks from the options chain are:

• COST20251219C865 (Call, $865 strike, 12/19 expiration):
- IV: 24.78% (moderate)
- Leverage: 149.91% (high)
- Delta: 0.348 (moderate sensitivity)
- Theta: -3.02 (significant time decay)
- Gamma: 0.0149 (responsive to price swings)
- Turnover: $3.25M (liquid)
This contract offers high leverage for a potential rebound above $865, with moderate delta to balance risk. A 5% downside scenario (to $810) would yield a payoff of $55 per contract, but its high gamma makes it sensitive to volatility spikes.

• COST20251226C865 (Call, $865 strike, 12/26 expiration):
- IV: 20.59% (lower)
- Leverage: 99.36% (high)
- Delta: 0.3906 (moderate)
- Theta: -1.487 (less time decay)
- Gamma: 0.0120 (moderate sensitivity)
- Turnover: $4.34M (liquid)
This longer-dated option provides more time for a rebound, with lower IV and higher leverage. A 5% downside scenario would yield a $55 payoff, but its lower theta reduces decay risk. Aggressive bulls may consider COST20251226C865 into a bounce above $865.

Backtest Costco Wholesale Stock Performance
The performance of Costco (COST) after a -4% intraday plunge from 2022 to now was significant, with the stock experiencing a substantial decline over that period.

Watch for $850 Breakdown as Bearish Signal Intensifies
Costco’s 3.6% intraday drop reflects a confluence of unmet expectations, bearish analyst sentiment, and valuation pressures. With the stock trading near its 52-week low and technical indicators pointing to further weakness, investors should monitor a breakdown below $850—the 30-day support level. A sustained move below this level could trigger a re-rating, especially with Roth Capital’s bearish stance and competitive pressures from Walmart. For now, the sector leader Walmart (WMT) remains relatively stable, but Costco’s high leverage options and oversold RSI suggest volatility is far from over. Watch for a breakdown below $850 or a surprise special dividend announcement.