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Eyes On Costco Wholesale (COST): Highlighted Storm The Castle Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Costco Wholesale ( COST) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Costco Wholesale as such a stock due to the following factors:

  • COST has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $252.0 million.
  • COST has traded 592,447 shares today.
  • COST is trading at 1.57 times the normal volume for the stock at this time of day.
  • COST crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in COST with the Ticky from Trade-Ideas. See the FREE profile for COST NOW at Trade-Ideas

More details on COST:

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. The stock currently has a dividend yield of 1.1%. COST has a PE ratio of 25.6. Currently there are 11 analysts that rate Costco Wholesale a buy, no analysts rate it a sell, and 9 rate it a hold.

The average volume for Costco Wholesale has been 2.5 million shares per day over the past 30 days. Costco Wholesale has a market cap of $50.6 billion and is part of the services sector and retail industry. The stock has a beta of 0.45 and a short float of 0.9% with 1.90 days to cover. Shares are down 3.4% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Costco Wholesale as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 5.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 68.55% to $713.00 million when compared to the same quarter last year. In addition, COSTCO WHOLESALE CORP has also vastly surpassed the industry average cash flow growth rate of -7.20%.
  • The current debt-to-equity ratio, 0.43, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick ratio, which is currently 0.56, displays a potential problem in covering short-term cash needs.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • COSTCO WHOLESALE CORP's earnings per share declined by 15.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, COSTCO WHOLESALE CORP increased its bottom line by earning $4.63 versus $3.90 in the prior year. For the next year, the market is expecting a contraction of 0.2% in earnings ($4.62 versus $4.63).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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