Costco's Q1 Earnings Preview: Analysts Bullish on Revenue, But Valuation Remains Stretched

What happened

Costco is set to release its first-quarter earnings on December 11, with analysts revising forecasts upward for higher revenue ahead of the call. Despite strong fundamentals like rising membership fees and high renewal rates, the DeepValue report highlights severe overvaluation at ~48x earnings, trading over three times a conservative DCF estimate. Recent performance shows solid comp sales growth and e-commerce acceleration, but SG&A deleveraging from wage pressures signals margin risks that filings may downplay. The stock has declined ~11% over the past year, yet remains elevated, reflecting a premium for quality that offers little margin of safety. This earnings release will critically test whether operational growth can justify the rich valuation amid competitive and cost headwinds.

Implication

Value investors face limited upside with current multiples unless earnings growth accelerates dramatically to close the valuation gap. Strong Q1 revenue, if not paired with margin stability or improvement, may only provide temporary support without addressing core overvaluation concerns. Weaker comps or increased SG&A pressure could trigger sharp de-rating, aligning with the DeepValue POTENTIAL SELL stance and highlighting propaganda in optimistic filings. Long-term holders should consider trimming if the report shows signs of deteriorating pricing power or cost control. New capital should avoid entry until a significant pullback offers a safer margin of safety, as the risk/reward remains unfavorable.

Thesis delta

The analyst revisions ahead of Q1 earnings do not alter the fundamental overvaluation thesis; they merely raise the bar for Costco to deliver exceptional results to sustain its premium multiple. Any disappointment in revenue growth, margins, or member metrics could swiftly validate the POTENTIAL SELL recommendation, reinforcing the critical need for toughness in assessing beyond surface-level optimism.