Why we're not betting against Costco

If you want a master class at providing value to consumers, look no further than Costco (COST).

The bulk retailer is famous for its $1.50 hotdog combo and treasure-hunt-inspired store format...and for investors, its seemingly ever-rising stock.

COST shares are up just over +60% YoY.

Heading into earnings, is the stock ready to surge to new all-time highs?

Here's how we see it...

Costco recently increased annual membership prices from $60 to $65 and $120 to $130 for its Gold Star and Executive memberships respectively -- it's first membership price hike in over 7 years.

While these new membership prices may cause consumers to question whether it’s worth paying for, web data shows searches for membership cancellations are unaffected.

Last quarter, Costco's retention rate in North America was 93% -- impressive.

COST can command a steep price for its membership because its savings are undeniable.

Executive membership costs $130 a year, this gives 2% cash back. Average monthly grocery bill in US is $334 to $667 for a family of 1 and 4 respectively. If one were to only buy groceries from Costco alone, they would offset membership cost by $80. A family of four would make a $30 profit. And this is solely on purchasing groceries.

Web data suggests eCommerce sales are growing.

COST digital traffic is up +4% YoY. A month ago, it was trending just +1% higher. This improvement could be a sign of momentum amid a busy back-to-school and early holiday shopping season. Google trends also suggests Costco is doing a good job of upgrading members into its pricier, executive membership bucket.

The only 2 red flags for us?

First, its valuation. It's current P/E is upwards of 50 when historically, it averages ~37.

Next, is the element of surprise. Costco releases monthly sales figures (which have been extremely consistent, near +7% YoY net sales).

Data does suggest improvement in the last month, but will it be enough to clear an extremely high bar?

We're officially neutral for earnings but maintain a strong bullish outlook long-term. We are buyers of any dips here.