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In a market where consumer staples stocks and discount retailers are holding up, Costco (COST) could be worth watching. The wholesale membership club showed decent growth as discount chains benefit from an inflationary environment. Also, Costco's cultish following helped the warehouse retailer reach record-high memberships for 2021. Is it time for investors to climb on board Costco stock?

Shares of Costco had a steady run higher last year. But like many stocks, the retailer struggled at the start of 2022. But Costco's correction was relatively light, and merely allowed the stock to form a proper base. This base propelled shares to new heights after a breakout in March. Meanwhile, the major indexes were selling off to new lows in February.

The major indexes have fallen into correction mode, which means investors ought to stay mostly in cash and avoid new buys as much as possible. The best way to stay engaged with the market is by keeping your watch lists up to date and only lightly investing in small positions when compelling opportunities present themselves.

Costco might be the only retailer selling both $1.50 hot dogs and $250,000 diamond rings under the same roof. You can also buy a tank of gas, a chicken coop or a funeral casket there while you're at it. This is a huge part of Costco's allure. It sells a large variety of items inside a chain of nondescript warehouses and charges customers a $60 membership fee just to get in the door. Costco's buy-in-bulk branding also makes it an ideal place for consumer stockpiling.

Total Costco cardholders rose to a record high 111.6 million in 2021, up from 105 million in 2020. Its membership renewal rate at the end of 2021 was 91% in the US and Canada and 89% in the rest of the world.  

Costco earnings, which were reported Mar. 3, showed sales growth of 16% year over year. Revenue rose 15% to $51.9 billion. The warehouse retailer reported annual earnings of $9.85 in 2020 and $11.93 in 2021, showing an increase of more than 21%.

Costco reported net sales of $21.61 billion for the retail month of March, an 18.7% increase year-over-year from $18.21 last March.

Comparable sales for the five weeks ended Apr. 3 rose 19.1% for Costco's U.S. operations. For the total company operations, comparable sales for the retail month were up 17.2%. E-commerce sales climbed 8.9% year-over-year for March.

When it comes to technical analysis, Costco stock had been showing strength as it became extended from a 545.39 breakout on Mar. 16. But shares reversed below the buy point this week and undercut support at the stock's 50-day line. Undercutting the prior buy point serves as a sell signal since the stock was previously well-extended from this entry.

Shares also broke out from a 566.85 cup-entry during the week of Apr. 1, but this breakout failed as shares came in to touch the 7% sell zone this week.

Costco's relative strength line had been rising through mid-April but is now fading from its highs.. The RS line tracks a stock's performance vs. the S&P 500 index.

But the stock features some positive technical indicators like rising fund ownership, which rose to 3,188 funds for the March-ended quarter. This indicates rising interest from institutional investors. Additionally, the Relative Strength Rating of 94 implies that Costco stock qualifies as an industry leader by IBD's CAN SLIM standards.

On Dec. 31, 1985, Costco went public at a split-adjusted 27 cents a share. Roughly seven years later, it traded close to 20 a share — a 7,278% price increase. It prides itself on becoming the first company ever to grow its revenue from zero to $3 billion in less than six years, according to its website. 

IBD gives Costco stock an 92 EPS Rating and C SMR Rating, which tracks sales, profit margins and return on equity. Costco has an IBD Composite Rating of 96 out of a best-possible 99.

"Over the past decade, Costco stock has delivered (about) 6% comps and (about) 10% EBIT (earnings before interest and taxes) growth on average. This is a remarkable earnings algorithm for any retailer, especially at a time when many have been struggling against the onslaught of e-commerce, " Morgan Stanley analyst Simeon Gutman said in a recent note to clients.

As of Mar. 17, Costco operates 829 warehouses worldwide, in locations including Canada, the U.K., Mexico, Australia, Spain, China and Japan, among others. It has 573 warehouses in the U.S. and Puerto Rico.

The best time to buy a stock like Costco is as it's breaking out of a base chart pattern. Costco is currently falling below its buy range which means investors may want to wait for the stock to regain strength before initiating a position. Also, with the market in a correction, its important to be extremely stringent with buying stocks. If anything, keep your position sizes to a minimum to prevent excess risk.

Investors should at the very least add Costco to your watchlist and keep a close eye. You might consider adding shares of this leading stock to your portfolio once its technical action improves.

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4:35 AM ET Despite strong fundamentals, sellers have knocked Costco stock lower ahead of its quarterly earnings report.

4:35 AM ET Despite strong fundamentals, sellers have knocked Costco stock lower ahead...

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