Jim Cramer Says Costco (COST) “Stock’s Acting Poorly”

During the Mad Money episode aired on September 18, Jim Cramer discussed Costco Wholesale Corporation (NASDAQ:COST) as the retail giant prepares to report its quarterly financial results. He said:

Finally, it's Costco, reports after the bell on Thursday. [The] stock's acting poorly, and it's a club name, and it has not been a good club name. They're having problems getting younger people to re-sign up for membership. The issue? Younger people are more likely to shop online at home. They don't really have big houses, and it's the in-store experience that makes Costco so apart from others, and what great samples... Remember, September is the cruelest month. It's been okay, not great.

Sales Momentum and Membership Growth Drive Core Expansion

Costco Wholesale Corporation (NASDAQ:COST) enters its upcoming earnings report with strong preliminary momentum after reporting August net sales of $23.7 billion, representing a 9.9% increase from $21.56 billion in the prior year period. For the 16-week fourth quarter ended August 30, 2026, preliminary net sales reached almost $94 billion, marking an 11.3% gain over last year.

In the third quarter of fiscal 2026 reported in May, the retailer generated GAAP net sales of $69.15 billion with diluted earnings per share of $4.93. Worldwide paid memberships climbed to 82.9 million, supported by a 92.2% renewal rate across the United States and Canada. Digitally enabled comparable sales rose 17.9% during August, highlighting consistent omnichannel engagement across retail regions.

Margin Pressures and Valuation Ratios Present Potential Hurdles

While Costco Wholesale Corporation (NASDAQ:COST) remains a dominant company, the primary risk lies in its elevated valuation and razor-thin margin for error. A clear warning sign emerged four months ago in May during the Q3 FY2026 report. Despite generating a robust $70.53 billion in revenue, COST missed consensus EPS by a single cent ($4.93 vs. $4.94 expected). The shares fell following the report, highlighting the vulnerability of a stock trading at a trailing P/E ratio above 45x. At these valuation levels, any deceleration in comp-store traffic, sticky labor cost inflation, or slower membership fee growth as the benefit of the September 2024 fee increase begins to lap could trigger a significant multiple contraction.

Institutional Positioning and Market Outlook Heading Into Reports

According to Insider Monkey database metrics, 104 hedge funds held positions in Costco Wholesale Corporation (NASDAQ:COST) at the close of the second quarter, marking a minor drop from 107 funds in the prior quarter. Meanwhile, short interest stands at 1.71% of the public float, indicating that traders are reluctant to establish aggressive bearish positions against the company's long-term cash flows.