Core Insights - Costco Wholesale Corp (NASDAQ:COST) reported worse-than-expected profits for the second quarter due to rising merchandising costs, leading to a 4.9% decline in stock price to $206.63, despite revenue beating estimates [1] - The stock has a year-over-year gain of 26.7% but has pulled back from its record high of $1,078.23 on February 13, breaching a recent support level at $1,020 and falling below the 120-day moving average [2] - The stock may experience its worst trading day since March if losses continue [2] Options Activity - There has been significant options activity with 13,000 calls and 20,000 puts traded, which is six times the typical volume for this time [3] - The most popular option is the weekly 3/7 1,020 call, with new positions being sold to open, set to expire at the close [3] Market Sentiment - The call/put volume ratio for COST at the International Securities Exchange, Cboe Options Exchange, and NASDAQ OMX PHLX is 1.19, indicating a bullish sentiment among options traders over the last 10 weeks, higher than 94% of annual readings [4]

Core Insights - Costco Wholesale has significantly outperformed the S&P 500, with stock performance exceeding the index by nearly 150 percentage points over the past five years and more than tripling the market's return over the last decade [1] Financial Performance - In Q1 of fiscal 2025, Costco reported a 5% increase in comparable-store sales and traffic compared to Q1 2024, contributing to an 8% revenue growth and a 13% net income growth [4][5] - Membership revenue reached $1.2 million in Q2, reflecting an 8% increase from the previous year, with over 77 million paid memberships and 139 million total cardholders as of Q1 2025 [7] Membership Fees and Future Revenue - Costco raised membership fees by 8% in September, a strategy employed every few years, which is expected to enhance revenue in the coming quarters [8] - The current valuation metrics may not fully reflect the future potential due to the delayed impact of the increased membership fees [8] Asset Ownership - As of the end of fiscal 2024, Costco owned 79% of its land and buildings, a factor often overlooked when assessing the stock's valuation [9] Valuation Considerations - Despite the strong financial results, Costco's stock trades at a premium, currently at 62 times trailing earnings, slightly below its 10-year high of 63 [2] - The current price is considered beyond fair value, leading to a cautious initial investment approach, with the potential for future position increases as more compelling value points arise [10][11]