Walmart vs. Costco: Which Retail Giant Should You Invest In?

As the retail landscape continues to evolve, two giants have emerged as clear leaders: Walmart (WMT) and Costco Wholesale (COST). Both companies have seen significant stock price increases over the past three years, with Walmart's stock rising over 90% and Costco's stock rallying over 60%, compared to the S&P 500's 23% advance during the same period. But which one is the better investment right now? Let's dive into their business models, market positions, and growth prospects to help you make an informed decision.



Walmart: A Diversified Retail Powerhouse

Walmart operates over 10,600 stores and warehouse clubs worldwide, with over 80% of its revenue coming from its Walmart and Sam's Club stores in the U.S. The company's scale enables it to sell its products at lower prices than many of its competitors, and it leverages its brick-and-mortar stores to fulfill its online orders. Walmart's revenue growth has been steady, with a 7% increase throughout the pandemic in fiscal 2021, followed by a 2% growth in fiscal 2022 due to divestments of non-core and overseas businesses. In fiscal 2023, Walmart's revenue rose 7% as those headwinds dissipated, and it grew another 6% in fiscal 2024. This growth was driven by a 5.6% increase in U.S. comparable sales (comps) and a 13% increase in international revenue.



Costco: A Membership-Based Warehouse Club

Costco operates members-only warehouse clubs, which sell discount and bulk products. The company generates most of its profits through its higher-margin membership fees, allowing it to sell many of its products at low margins. Costco's revenue growth has been robust, with a 17% increase in fiscal 2021 and a 16% increase in fiscal 2022. However, growth slowed to 7% in fiscal 2023 and 5% in fiscal 2024 as the company lapped pandemic-driven tailwinds and faced inflationary headwinds. Despite this, Costco's total adjusted comps (excluding currency exchange rates and fuel sales) still increased 5.9% in fiscal 2024, with stronger overseas growth outpacing U.S. growth.



Which Stock to Buy: Walmart or Costco?

Both Walmart and Costco have seen significant revenue growth and stock price increases over the past three years. However, Walmart's stock is currently cheaper, with a forward P/E ratio of 32.94 compared to Costco's 45.81. Additionally, Walmart's diversified retail presence and ability to offer a wide range of products at competitive prices give it an edge in the market. While Costco's membership-based business model and focus on high-quality products at low prices have contributed to its success, its reliance on membership fees and the need to maintain high renewal rates could pose challenges to its future growth.

In conclusion, while both Walmart and Costco are strong investments, Walmart's diversified retail presence, competitive pricing strategy, and lower forward P/E ratio make it the better choice for investors looking to buy a retail stock right now. However, it's essential to keep an eye on both companies' earnings reports and market performance to make informed decisions.