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Rick Pendergraft's Avatar
published in Blogs
Dec 15, 2020

Getting Paid to Wait for a Better Entry Price on Costco

Discount retailer Costco (COST) rallied nicely since hitting a low of $262.68 in late February. The stock hit a recent high of $388.07 and has been consolidating over the last few weeks. The rally from June through October put the stock in overbought territory based on both the 10-week RSI and the weekly stochastic indicators.

While I wouldn’t mind owning Costco, I think it is more prudent for investors to wait for a better entry point.

Something that jumped out at me is the trend channel that has formed over the last two years and how the stock is bumping up against the upper rail of the channel at this time.

With the stock hitting the upper rail of the channel and being in overbought territory, some investors might consider shorting Costco. Personally I wouldn’t recommend that because the company’s fundamentals are too good for me to consider a bearish position. Plus the stock could consolidate for a few months. A consolidation would move the stock out of overbought territory and if it last long enough it would give the lower rail time to catch up and provide support.

If we look at Tickeron’s Fundamental Screener, Costco gets a great score in the Profit vs. Risk Rating, a good score in the Price Growth Rating, and average scores in the SMR and P/E Growth ratings. The company does get three negative scores as well, but if we look at those areas, they are based on the timing and the stock price. The Outlook Rating is poor, and so is the Valuation Rating. The company also gets a negative mark for its Seasonality Score.

Another way to play the current setup on Costco would be to sell out of the money puts. Like I said, I would like to own the stock, but not at the current price. Because of the fundamentals, I don’t like the risk/reward relationship of shorting the stock. If the stock does fall down to the $330 area, it would mean a drop of 11.9% and a gain of that much on a short sell. However, if the stock continues to rise and hug that upper rail, the short position starts losing money.

If we look at the March ’21 330-strike puts, they are selling at $4.30 right now, or $430 for each contract. To sell the puts, investors would have to put up $3,730 in margin. If the stock drops below $330 and the stock gets put to you, your cost basis for owning Costco is $325.70. That’s down near the lower rail and where you want to enter a new position on Costco in my estimation.

If Costco continues higher or only drops a little, you keep the $430 and you earn a return on margin of 11.5%, a similar return as the short sell, but with less risk.

I like the idea of making money while waiting for a better entry price, especially on a stock that looks as strong as Costco.

Here’s what the complete outlook from Tickeron looks like.

Related Ticker: COST

COST in +2.06% Uptrend, rising for three consecutive days on March 04, 2024

Moving higher for three straight days is viewed as a bullish sign. Keep an eye on this stock for future growth. Considering data from situations where COST advanced for three days, in of 390 cases, the price rose further within the following month. The odds of a continued upward trend are .

Price Prediction Chart

Technical Analysis (Indicators)

Bullish Trend Analysis

The Moving Average Convergence Divergence (MACD) for COST just turned positive on February 26, 2024. Looking at past instances where COST's MACD turned positive, the stock continued to rise in of 44 cases over the following month. The odds of a continued upward trend are .

The Aroon Indicator entered an Uptrend today. In of 400 cases where COST Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .

Bearish Trend Analysis

The RSI Indicator demonstrates that the ticker has stayed in the overbought zone for 7 days. The longer the ticker stays in the overbought zone, the sooner a price pull-back is expected.

The Stochastic Oscillator demonstrated that the ticker has stayed in the overbought zone for 7 days. The longer the ticker stays in the overbought zone, the sooner a price pull-back is expected.

Following a 3-day decline, the stock is projected to fall further. Considering past instances where COST declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .

COST broke above its upper Bollinger Band on February 22, 2024. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.

Fundamental Analysis (Ratings)

Fear & Greed

The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating outstanding price growth. COST’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.

The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating low risk on high returns. The average Profit vs. Risk Rating rating for the industry is 45, placing this stock better than average.

The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.

The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.

The Tickeron Seasonality Score of (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.

The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is significantly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (12.887) is normal, around the industry mean (10.639). COST's P/E Ratio (51.751) is considerably higher than the industry average of (23.829). Projected Growth (PEG Ratio) (5.403) is also within normal values, averaging (3.207). Dividend Yield (0.005) settles around the average of (0.022) among similar stocks. P/S Ratio (1.373) is also within normal values, averaging (1.227).

Notable companies

The most notable companies in this group are Walmart (NYSE:WMT), Costco Wholesale Corp (NASDAQ:COST), Target Corp (NYSE:TGT), Dollar General Corp (NYSE:DG), Dollar Tree (NASDAQ:DLTR), Big Lots (NYSE:BIG).

Industry description

Companies in the discount stores industry specialize in offering substantial discounts on a vast array of retail products. Some companies in this industry also operate general merchandise warehouse clubs. Products sold at discount stores are typically similar to those of any department store, but the pricing of the goods is generally much lower (and hence the name “discount”). Think Dollar General Corporation, Dollar Tree, Inc. and Five Below, Inc. Many discount stores target low-income households and/or price-sensitive consumers as their potential market. Discount stores’ profitability could hinge on factors like competitive pricing, sufficient locations, healthy revenue per square foot, and effective advertisement. These store operators could have an edge over other retailers during financial crises or recessions, when many consumers could be looking for less expensive alternatives.

Market Cap

The average market capitalization across the Discount Stores Industry is 68.27B. The market cap for tickers in the group ranges from 1.78K to 473.18B. WMT holds the highest valuation in this group at 473.18B. The lowest valued company is TUEMQ at 1.78K.

High and low price notable news

The average weekly price growth across all stocks in the Discount Stores Industry was 2%. For the same Industry, the average monthly price growth was 3%, and the average quarterly price growth was 12%. BIG experienced the highest price growth at 19%, while OLLI experienced the biggest fall at -5%.

Volume

The average weekly volume growth across all stocks in the Discount Stores Industry was -26%. For the same stocks of the Industry, the average monthly volume growth was -7% and the average quarterly volume growth was 2%

Fundamental Analysis Ratings

The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows

Valuation Rating: 48
P/E Growth Rating: 55
Price Growth Rating: 47
SMR Rating: 43
Profit Risk Rating: 45
Seasonality Score: 34 (-100 ... +100)
View a ticker or compare two or three
COSTDaily Signal changed days agoGain/Loss if shorted
 
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A.I.Advisor
published price charts
A.I. Advisor
published General Information

General Information

a company which sells goods through membership warehouses

Industry DiscountStores

Profile
Fundamentals
Details
Industry
Specialty Stores
Address
999 Lake Drive
Phone
+1 425 313-8100
Employees
316000
Web
https://www.costco.com
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COST and

Correlation & Price change

A.I.dvisor indicates that over the last year, COST has been loosely correlated with WMT. These tickers have moved in lockstep 49% of the time. This A.I.-generated data suggests there is some statistical probability that if COST jumps, then WMT could also see price increases.

1D
1W
1M
1Q
6M
1Y
5Y
Ticker /
NAME
Correlation
To COST
1D Price
Change %
COST100%
+1.30%
WMT - COST
49%
Loosely correlated
+0.92%
BJ - COST
34%
Loosely correlated
-0.53%
PSMT - COST
26%
Poorly correlated
+0.50%
DLTR - COST
24%
Poorly correlated
-1.37%
TGT - COST
20%
Poorly correlated
-3.09%
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