Costco vs. Walmart: Which Retail Stock Should You Buy Now?

A comparative analysis of retail giants Costco and Walmart for investors highlights Costco's robust membership model, which drove a 10.4% Q3 FY25 membership fee increase and strong e-commerce growth, yet its 49.32 P/E valuation limits upside. Walmart, conversely, leverages its global scale, diversified revenue streams—including 22% Q1 FY26 e-commerce growth and expanding advertising—and a more attractive 36.36 P/E. Ultimately, Walmart is deemed the stronger investment due to its broader growth drivers and more reasonable valuation, supported by its superior one-year stock performance (+35.1% vs. +11.8%) and a Zacks #2 (Buy) rating compared to Costco's #4 (Sell).

Analysis

A comparative analysis of Costco (COST) and Walmart (WMT) reveals a distinct trade-off between growth expectations and valuation. Costco demonstrates robust fundamental strength through its membership model, evidenced by a 92.7% renewal rate in the U.S. and Canada and a 10.4% year-over-year increase in membership fee income in Q3 FY25. This is complemented by strong digital execution, with e-commerce comparable sales rising 14.8%. Forecasts project significant growth, with consensus estimates implying an 11.6% rise in EPS for the fiscal year. However, this growth comes at a premium valuation, with a forward P/E of 49.32, and is accompanied by cautionary signals such as a recent 9-cent downward revision in its consensus EPS estimate and a Zacks #4 (Sell) rating. In contrast, Walmart leverages its immense scale and a rapidly expanding omnichannel strategy. Its worldwide e-commerce sales surged 22% in Q1 FY26, and it is successfully diversifying into higher-margin businesses like advertising via Walmart Connect. While Walmart's projected EPS growth of 3.6% is more modest, its stock has significantly outperformed, gaining 35.1% over the past year compared to Costco's 11.8%. Furthermore, Walmart's forward P/E of 36.36 is more attractive, its consensus EPS estimate has seen a slight upward revision, and it holds a Zacks #2 (Buy) rating, suggesting stronger investor sentiment and a more favorable risk-reward profile.

Key Decisions for Investors

• Given Walmart's superior one-year stock performance (+35.1%), strong e-commerce growth (+22%), and more reasonable forward P/E of 36.36, investors seeking a blend of stability and growth may favor it over Costco.
• Investors should be cautious of Costco's high valuation, as its forward P/E of 49.32 may already price in its strong growth prospects, limiting near-term upside, a concern amplified by its recent downward EPS estimate revision and 'Sell' rating.
• Consider monitoring key risk factors for both retailers, including currency headwinds and potential tariff impacts, which could pressure margins and affect consumer demand for discretionary items.
• For relative value strategies, the divergence in performance, valuation, and analyst sentiment (WMT 'Buy' vs. COST 'Sell') could support a pairs trade that is long Walmart and short Costco.