Here's why Jim Cramer is putting Costco stock in the penalty box

Jim Cramer said Thursday that "something's wrong" at Costco , and he plans to get to the bottom of it one way or another. Costco's slightly better-than-expected August same-store sales, or comps in retail-speak, reinforced a growing concern of Jim and other investors: The company's execution needs to be perfect to maintain the stock's lofty price-to-earnings valuation of nearly 41 times forward earnings estimates. Comps that just about exceed expectations are not perfect execution, especially as the retailer tries to figure out how to get younger members to renew their memberships at a greater pace. For the four weeks ending Aug. 30, Costco reported on Wednesday evening an overall comp sales increase of 5.4%, excluding the impact of gasoline prices and foreign exchange fluctuations. The company saw a 75 basis point, or three-quarters of a percentage point, drag on growth due to Labor Day being a week later this year. Adjusting for the calendar headwind, according to Wells Fargo, same-store sales would have been up 6.2% last month, versus an expected 6.1%. On top of just eking out a beat, the analysts pointed to traffic decelerating 110 basis points, or 1.1 percentge points, and tracking below the trailing 12-month average. COST mountain 2024-12-31 Costco performance since 2025 Costco shares were flat Thursday at $929 each — down 15% from their all-time high of nearly $1,097 in May. While still up roughly 8% year to date, that's little consolation, because the stock entered 2026 on the slide. The fact that shares were unable to hold on to new highs this year followed a similar up-and-down pattern from 2025. The core issue behind the stock's underperformance lies with Costco's decelerating membership growth due to the difficulty of getting online signup members, who tend to skew younger to renew at the same rates as in-store signup members, who tend to skew older. "You're not getting the younger people to re-up," Jim said, noting that Costco needs to resonate with its younger customers. "You don't want to age out. If Costco ages out, that'd be terrible." Costco generates a bulk of its operating income from membership fees, and this consistent revenue stream is reliable in a sector that has struggled given the cost pressures consumers are facing from inflation. "It's just concerning to me," Jim said, suggesting he must consider whether Costco still belongs in the portfolio, even though it has been a longtime position. "I'm not just going to sit here and just say, 'Let's take a beating' — that's never been my style," he said. The company has been posting mid-to-high single-digit comp sales growth consistently for years, which could lead investors to believe that Costco has been a victim of its own success. In other words, it has already experienced so much growth over so many years, making it difficult for management to maintain a higher percentage growth rate. However, Costco's online membership acquisition and renewal is now a problem that is too big to ignore as growth potential collides with the stock's high valuation. The August monthly sales report brings the company's fiscal year 2026 to a close. So, when earnings are released later this month, the revenue side of the ledger won't be a surprise. What we will get from fiscal 2026 fourth quarter numbers is a clearer picture of how management is working to fix the membership problem. (Jim Cramer's Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.