Costco vs. Walmart: Which Retail Stock Offers Better Value and Growth in 2025?

The retail landscape in 2025 remains fiercely competitive, with Costco (COST) and Walmart (WMT) dominating the membership-based retail sector. Both companies have demonstrated resilience amid shifting consumer preferences and economic volatility, but their financial trajectories diverge significantly when analyzed through the lenses of valuation efficiency and long-term profit sustainability. This article examines their 2025 performance metrics to determine which stock offers a more compelling investment opportunity.

Valuation Efficiency: Walmart's Discounted P/E Ratio

Valuation efficiency is a critical metric for investors seeking undervalued stocks with strong earnings potential. As of November 2025, Walmart trades at a forward price-to-earnings (P/E) ratio of 36.02, compared to Costco's 45.01. This 20% discount suggests that Walmart's stock is more attractively priced relative to its future earnings, offering investors a margin of safety. A lower P/E ratio often indicates that the market has lower short-term expectations for a company's growth, but in Walmart's case, this appears to be a mispricing given its robust financial performance.

Net Income Growth: Walmart's Outperformance

Walmart's net income growth in 2025 has outpaced Costco's by a significant margin. Year-over-year, Walmart reported a 34% increase in net income, while Costco's net income grew by just 11% according to financial reports. This disparity underscores Walmart's ability to optimize its vast operational scale, reduce costs, and capitalize on its omnichannel strategy. Costco, while profitable, has faced margin pressures from its membership-driven model, which prioritizes volume over markup. For investors focused on near-term profitability, Walmart's superior earnings growth is a decisive advantage.

Digital Transformation: Walmart's Advertising and E-Commerce Surge

The shift to digital commerce has reshaped retail, and Walmart's aggressive expansion into advertising and e-commerce positions it as a leader in this transition. In Q2 2025, Walmart's digital advertising revenue surged 46% year-over-year, driven by its ability to monetize its 100 million+ active e-commerce users. This contrasts with Costco's 13.6% year-over-year e-commerce sales growth, which, while solid, lacks the high-margin advertising component according to financial analysis. Walmart's advertising segment not only diversifies its revenue streams but also enhances customer retention by integrating targeted promotions into its digital ecosystem.

Membership Growth: Costco's Strength vs. Walmart's Momentum

Costco's membership model remains a cornerstone of its success. In Q4 2025, the company reported 81 million paid household members-a 6.3% annual increase-and a 14% rise in membership fee income, fueled by price hikes and Executive membership upgrades. Notably, 47.7% of Costco's members now hold Executive memberships, which generate higher recurring revenue. However, Walmart has outpaced Costco in recent membership growth. By Q3 2026, Walmart's global membership fee income rose 16.7%, driven by double-digit growth in Walmart+ and Sam's Club. While Costco's loyalty is unparalleled, Walmart's broader strategy-combining membership incentives with digital innovation-creates a more dynamic growth engine.

Long-Term Profit Sustainability: The Tipping Point

Long-term sustainability hinges on a company's ability to adapt to macroeconomic trends and technological disruption. Walmart's diversified approach-balancing physical stores, e-commerce, and advertising-reduces its reliance on any single revenue stream. Its digital advertising segment, in particular, offers high-margin scalability, a feature absent in Costco's membership-centric model. Additionally, Walmart's lower P/E ratio suggests the market has yet to fully price in its digital transformation, creating upside potential for patient investors.

Costco, meanwhile, faces the challenge of sustaining membership growth in a saturated market. While its Executive membership tier provides a buffer, further price hikes could erode customer retention. For Costco to maintain its premium valuation, it must innovate beyond its core model-something Walmart is already executing through its advertising and logistics investments.

Conclusion: Walmart as the More Compelling Buy

While Costco's membership growth and brand loyalty remain impressive, Walmart's combination of a lower P/E ratio, stronger net income growth, and a high-margin digital advertising business makes it the more compelling investment in 2025. Walmart's ability to leverage scale, diversify revenue streams, and adapt to digital trends positions it as a leader in the next phase of retail evolution. Investors prioritizing valuation efficiency and long-term profit sustainability should favor Walmart over Costco, despite the latter's short-term membership momentum.