Why Costco Stock Dropped Today

Costco Wholesale (NASDAQ: COST) slid 3.6% through 2:25 p.m. ET Monday after Wall Street bank Roth Capital downgraded the shares from neutral to sell, and set a $769 price target on the $852 stock.

Roth says it finds Costco's metrics "concerning," reports TheFly.com today, noting that same-store sales growth and member additions are both decelerating, and membership renewals are "fading."

Image source: Getty Images.

Costco rivals circle

At the same time, Roth warns of increased competition from Walmart (NASDAQ: WMT) and BJ's Wholesale (NYSE: BJ) as the all-important holiday season gets underway. But is the news really as bad as Roth suggests?

A recent report from CNBC suggests otherwise.

According to the CNBC All-America Economic Survey, "41% of Americans plan to spend less for the holidays this year," with 46% of those shoppers blaming inflation for why they're cutting back. 61% of shoppers surveyed say prices are rising faster than their incomes, especially among lower-income consumers. But here's the thing:

This could be good news for Costco.

Is Costco stock a sell?

After all, Costco famously sells goods at a discount, relying on membership fees to provide most of its profit. What's more, while overall consumer spending looks mostly flat this Christmas season, at about $1,016 per shopper, those who are spending more will spend closer to $1,199 this year.

And according to CNBC, "those spending more than $1,000 are more likely to be visiting places like Costco."

Regardless of what Roth thinks is happening, it seems to me this trend is actually good news for Costco, as bargain-seekers and big spenders alike flock to its stores. Granted, at 47 times earnings, I cannot really call Costco stock "cheap." But I wouldn't sell the stock today simply on Roth's say-so.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.