With shares of Costco (NASDAQ:COST) trading around $105, is COST an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Costco engages in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, and through majority owned subsidiaries in Taiwan and Korea. The company offers branded and private-label products in a range of merchandise categories. Costco buys the majority of its merchandise directly from manufacturers which allows it to sell at very low prices. As consumers opt to shop for larger items with more discounts, look for Costco to lead this market.

T = Technicals on the Stock Chart are Strong Costco is a stock that has seen a euphoric rise since establishing lows during the Financial Crisis. The stock is trading near all-time highs but it seems as if it makes new highs yearly and sees no sign of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Costco is trading above its rising key averages which signal bullish price action in the near-term.


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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Costco options may help determine if investors are bullish, neutral, or bearish.


What does this mean? This means that investors or traders are buying an avearge amount of call and put options contracts, as compared to the last 30 and 90 trading days.


As of today, there is an average demand from call buyers or sellers and average demand by put buyers or sellers, all neutral over the next two months. To summarize, investors are buying an average amount of call and put option contracts and are leaning neutral over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Costco’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Costco look like and more importantly, how did the markets like these numbers?


Costco earnings have been excellent and revenue growth rates over the last four quarters. From these figures, the markets have been pleased with Costco’s last four earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Costco stock done relative to its peers, Target (NYSE:TGT), Wal-Mart (NYSE:WMT), Dollar General (NYSE:DG), and sector?


Costco has underperformed, year-to-date, relative to its peers and sector.


Costco provides products and services in sizes and prices that consumers across the globe are enjoying. The has made new highs over the last several years on support from excellent earnings and revenue growth figures. However, Costco has trailed in performance relative to its peers and sector. Look for Costco to OUTPERFORM.