Costco Faces Downgrades, Death Cross, Insider Selling

Key Points

• COST shares made a new all-time high in February, but have failed to maintain that momentum over the last quarter.
• Despite continuing to produce strong earnings and membership growth, the stock is under pressure from a range of headwinds, including technical and fundamental trends.
• COST investors may want to consider these factors before 'buying the dip' in the stock.

Sometimes, it’s just not your year, despite still being at the top of your game. Costco Wholesale Corp. NASDAQ: COST reached a new all-time high of $1076 back in February, and appeared to be headed for another banner year following a fiscal Q2 2025 earnings beat.

The second quarter turned hope into despair, as the market crushed COST shares and simply wouldn’t let them recover.

The stock was one of the biggest winners in 2023 and 2024, but it boasts just a 2% year-to-date (YTD) gain in 2025, and several concerning trends are beginning to emerge. If you’re considering a new entry point in COST, you may want to consider the following three factors before putting any of your hard-earned capital to work.

Analyst Downgrades Despite Earnings Success

The company reported fiscal Q3 2025 earnings after the market closed on May 29, and the report again impressed investors, sending the stock up 5% in the two sessions following the release. But the rally was short-lived, and analysts weren’t as enthusiastic about the report as the initial numbers may have suggested.

The stock received two price target boosts following the Q3 earnings report, but it also received two price target reductions from Loop Capital and Evercore ISI. COST shares also received a rare downgrade earlier this month when Erste Group Bank lowered its rating from Buy to Hold.

Analysts at Erste Group noted the pricey valuation of COST shares compared to other retail sector peers, and anticipate lower sales figures in the upcoming quarter.

Costco currently trades at more than 53x earnings, with a forward P/E ratio of 52.2. These metrics are slightly lower than they were in June, when we last discussed COST’s growing valuation concerns, but still nearly double the industry average of 27.

Costco will likely need to continue blowing away expectations in its earnings releases to support this valuation, and the stock’s reaction in the months following a report showing 5.7% comp sales alludes to a high bar to clear. 

Death Cross on the Daily Chart

COST shares failed to reach a new all-time high following its May 29 earnings report, which may have surprised some investors, as the selloff in the following weeks gained strength with surprising speed.

The share price quickly took out the 50-day simple moving average (SMA) and then the 200-day SMA in July. Another failed breakout materialized in August but was quickly extinguished, and these failed attempts crafted one of the technical analyst’s least favorite signals: the Death Cross.

A death cross occurs when a stock’s 50-day SMA declines below its 200-day SMA, indicating a bearish momentum shift. If the asset’s price drops below this level, it usually means that a new downward trend is gaining strength, and COST shares dipped with fierce momentum following the death cross formation.

Investors can no longer depend on the 50-day or 200-day SMAs for support, and the share price will likely need to break through these levels again with sustained upward pressure before a new trend can emerge. But when a stock continues to make lower highs amidst other bearish signals, the momentum is usually to the downside.

Insiders Unloading Their Shares

Insiders buy shares for one reason, but they often sell for various reasons, such as to mitigate their risk exposure to a single company or fund a personal purchase.

However, when insiders consistently sell stock despite strong earnings and margin growth, it's another potential signal that something isn’t right under the hood.  COST’s insider transactions have been trending in one direction over the last year.

Insiders are high-ranking employees from the company who hold significant equity stakes, such as C-suite executives, vice presidents, directors, or other individuals with substantial power and stock holdings. High-ranking employees and those with 10% or more equity holdings are required to report their transactions to the Securities and Exchange Commission (SEC) through specific forms, which are publicly available to investors and analysts. 

Insider selling has increased rapidly over the last 12 months, following relatively quiet periods in 2022 and 2023. Insiders have been net share sellers in the previous eight quarters, with sales coming from CEO Roland Michael Vachris and notable executive vice presidents Gary Millerchip and Claudine Adamo.

While these are relatively small sales in terms of total holdings, multiple executives are withdrawing capital from their COST holdings to deploy elsewhere, which has likely given investors pause over the last few months (or at least considering more affordable competitors).