Costco Stock Nears Buy Point; Profits Pop

Profit growth for retail giant Costco Wholesale (COST) has risen sharply the last couple of quarters, from 4% three quarters ago to 18% last quarter. As a result, the Relative Strength (RS) Rating for top-ranked Costco stock climbed to 73 Monday, up from 67. However, Costco results overall are a tale of two metrics.

The upgraded 73 RS Rating shows that Costco stock tops 73% of all stocks for price performance over the past year. However, it’s still several points below a key benchmark. The market’s biggest winners often have an RS Rating above 80 as they begin their biggest climbs. See if Costco Wholesale can continue to show renewed price strength and hit that benchmark.

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Even as that rating improves, its other ratings shine much brighter. Costco, headquartered in Issaquah, Wash., near Seattle, has an outstanding 96 Earnings Per Share Rating. That puts it in the top 4% of  all companies for recent and long-term profit growth. It also boasts an 89 Composite Rating and a B Accumulation/Distribution Rating on an A+ to E scale. The B rating shows that big funds are eager buyers of Costco stock.

Costco stock is trying to complete a consolidation with a 564.75 entry. See if the stock can break out in volume at least 40% higher than normal. Monday afternoon, Costco traded up about 1% to 552.

In terms of fundamentals, earnings grew 18% last quarter to $3.43 per share. However, revenue rose just 2% to $53.6 billion. As profit growth has risen in recent quarters, sales growth slowed, from 8% to 6% and then 2% last quarter. Look for sales growth to reaccelerate.

Still, Costco stock holds the No. 1 rank among its peers in the Retail-Major Discount Chains industry group. Rival Walmart (WMT) is No. 2 in the group. And South America big box retailer PriceSmart (PSMT) takes the No. 3 spot.

When looking for the best stocks to buy and watch, one factor to watch closely is relative price strength.

The exclusive Relative Strength Rating from Investor’s Business Daily tracks share price action with a 1 (worst) to 99 (best) score. The grade shows how a stock’s price behavior over the trailing 52 weeks stacks up against all the other stocks in our database.

Please follow James DeTar on Twitter @JimDeTar 

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