Investment Analysis: Walmart vs. Costco
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1h ago
0mins
Source: NASDAQ.COM
- Retail Market Competition: Walmart and Costco are the top two consumer staples companies globally, with Walmart's diversified retail model providing greater resilience during economic fluctuations compared to Costco's club store focus.
- Dividend Attractiveness Lacking: Walmart's dividend yield stands at a mere 0.8%, below the S&P 500's 1.1%, while Costco's is even lower at 0.5%, leading income-seeking investors to overlook both stocks.
- Growth Potential Differences: While Walmart performs well in big-box and grocery sectors, Costco's membership model generates about 50% of its gross profits, offering stronger long-term growth potential, especially amid economic uncertainty.
- High Market Valuation: Both companies currently exhibit price-to-earnings ratios above their five-year averages, indicating they appear expensive on an absolute basis, prompting many investors to adopt a cautious stance in the current market environment.
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Analyst Views on COST
Wall Street analysts forecast COST stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for COST is 1061 USD with a low forecast of 769.00 USD and a high forecast of 1205 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
24 Analyst Rating
19 Buy
4 Hold
1 Sell
Strong Buy
Current: 952.890
Low
769.00
Averages
1061
High
1205
Current: 952.890
Low
769.00
Averages
1061
High
1205
About COST
Costco Wholesale Corporation (Costco) operates membership warehouses and e-commerce sites that offer a selection of nationally branded and private-label products in a wide range of categories. The Company buys the majority of its merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to its warehouses. It operates 891 warehouses, including 614 in the United States and Puerto Rico, 108 in Canada, 40 in Mexico, 35 in Japan, 29 in the United Kingdom, 19 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two in France, and one each in Iceland, New Zealand and Sweden. It also operates e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia. The Company provides wide selection of merchandise, plus the convenience of specialty departments and exclusive member services.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Costco's 682% Return Over 10 Years: A Strong Investment
- Significant Investment Returns: As of January 27, Costco has achieved a total return of 682% over the past decade, meaning a $100 initial investment is now worth $782, significantly outperforming the S&P 500 index and highlighting its strong investment appeal.
- Warehouse Growth: Over the last ten years, Costco has expanded its warehouse count, which has driven merchandise sales growth and an increase in its loyal membership base, resulting in a substantial rise in net income that reflects its robust fundamental performance.
- Market Performance Analysis: Currently, Costco has a market capitalization of $417 billion, with shares priced at $940.10 and a price-to-earnings ratio of 52, indicating its expensive nature as an investment opportunity, necessitating careful evaluation by investors.
- Investment Advice: Despite Costco's impressive historical performance, experts recommend that investors wait for a significant pullback in stock price before considering adding to their positions to avoid the risks associated with buying at high levels.
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Investment Analysis of Walmart and Costco
- High Valuation: Both Walmart and Costco exhibit price-to-earnings, price-to-sales, and price-to-book ratios that exceed their five-year averages, indicating that both stocks are currently overvalued and may not appeal to value investors.
- Insufficient Dividend Appeal: Walmart's dividend yield stands at a mere 0.8%, lower than the S&P 500's 1.1%, while Costco's yield is even less attractive at 0.5%, leading to a lack of interest from dividend investors.
- Growth Potential Comparison: While Walmart dominates the market, Costco shows significant success in expanding its geographic reach, making it more appealing to growth investors and highlighting its potential for future growth.
- Membership Revenue Advantage: Costco's membership fees account for about half of its gross profits, allowing it to maintain competitive pricing with lower margins, thereby enhancing customer retention and creating a stable income stream.
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