Best Stock to Buy Right Now: Walmart vs. Costco

Retail giants Walmart (WMT) and Costco (COST -0.33%) are recognized for offering buyers bargain prices with a long history of generating massive returns for shareholders. Despite their different business models, both companies are having a record year with stronger-than-expected sales, driving the stock to an all-time high.

Let’s examine whether the rally in Walmart and Costco can continue and which stocks might be a better buy today.

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The case for Walmart

Walmart shares are up 53% in 2024, propelled by a backdrop of resilient global macroeconomic conditions. Following a challenging post-pandemic era, easing inflationary cost pressures, along with financial efficiency initiatives, have translated into a new round of earnings momentum.

In the second quarter (for the period ended July 31), Walmart reported a 9.8% increase in adjusted earnings per share (EPS) as gross margin climbed to 24.4%, the highest level of the fiscal year 2022.

Comparable U.S. sales rose 4.2 percent year over year, highlighting Walmart’s performance at a time when smaller discount stores such as The dollar tree and general dollar he struggled. A major theme was the trend of higher-income households seeking deals at Walmart, which management cited as contributing to its retail share gains.

Walmart’s investments in technology as part of its omnichannel strategy appear to be paying off. Global e-commerce sales were a growth driver, rising 21% in Q2, driven by a rising level of advertising revenue.

What I love about Walmart is the underappreciated diversification. International business grew with a strong performance in China, where sales rose 18% in the last quarter. The Sam’s Club segment also contributes to profitability. These layers of Walmart with significant infrastructure synergies can lead to structurally higher margins in the future.

For the full fiscal year 2025, Walmart expects revenue growth between 3.75% and 4.75%, with a midpoint EPS target of $2.39 representing 8% year-over-year growth.

This earnings guidance implies that Walmart stock trades at a forward price-to-earnings (P/E) ratio of 34, above the five-year average for the multiple closer to 29. Still, there’s a case to be made that the company’s transformation with the trade electronic playing a greater role in business supports the expansion of assessment.

WMT Data PE Report (before) by YCharts

The case for Costco

Costco Wholesale stands out as a pioneer in the membership-based retail club concept, charging customers an annual fee. In turn, shoppers secure deep discounts on products typically sold in bulk, while receiving additional savings on travel services and gas. The business model has proven to be very successful with a network of 891 locations worldwide and over 75 million paying members.

In its most recently reported fiscal fourth quarter (for the period ended Sept. 1), Costco reported adjusted comparable sales growth of 6.9%. The big story was an acceleration in its e-commerce segment, where comparable sales rose 19.5%.

Efforts to control expenses boosted margins, leading to a 17% increase in EPS to $16.56 for the full year. The results have been good enough to send shares up 60% over the past year, with management projecting confidence into 2025 and a plan to open 26 new stores.

The appeal of Costco stock as an investment is the membership loop, where loyal shoppers buy more and more into the ecosystem. That includes its growing online business, which allows Costco to generate higher margins as it expands internationally.

On the other hand, investors are paying a sizeable premium for the consistency of Costco’s cash flow and earnings quality. Costco shares trade at 50 times consensus 2025 EPS of $17.82 as a forward P/E ratio, which is objectively expensive, even compared to Walmart. This level can be justified based on the company’s solid fundamentals and positive outlook.

Shop Better: Walmart

There’s a lot to like about these two blue chip stocks, which should continue to reward shareholders. At the same time, I think Walmart is the best buy right now, with its stock offering better value and more upside compared to Costco.

In a lower interest rate scenario, Walmart could benefit from broader exposure to improved consumer discretionary spending, which could be a catalyst for earnings to beat expectations through 2025. Ultimately, Walmart may work for investors with a long-term time horizon. within a diversified portfolio.