Costco vs Walmart Stock: Which Is a Better Investment?
Written by
James Holbach
Edited by
Daria Uhlig
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Costco (COST) and Walmart (WMT) are titans of U.S. retail, one known for rock bottom prices, the other for bulk packaging and wide-ranging deals. You may have a favorite — maybe you like the convenience of Walmart, or maybe you love a cheap hot dog while you shop at Costco. Both companies have made investors a ton of money over the years, but which is the top stock right now?
Growth
A company’s future growth prospects are a critical part of assessing their worth as an investment. This can be difficult to predict for the average investor, but companies of this size are typically followed by a number of analysts employed by research companies and investment management firms. The five-year growth rate predicted by analysts for Costco is 9.94% per year, while analysts predict a 7.53% per year growth rate for Walmart over the same period.
Edge: Costco
Dividend Yield
Costco and Walmart are both dividend stocks. Their dividend yields express how much of a dividend each pays investors, in a way that makes it easier to compare between companies. The dividend yield is calculated by dividing the dollar amount of the dividend by the price of one share of stock. Costco’s dividend yield is 0.65%, while Walmart yields 1.39%.
Edge: Walmart
Valuation
Valuation is perhaps the most important factor to consider when evaluating an investment. At the end of the day, the price you pay determines your return. Even an amazing business can be a bad investment at the wrong price. The most commonly used metric for publicly-traded stocks is the price-to-earnings (P/E) ratio. The lower the ratio, the cheaper the stock, all other things being equal. Costco’s most recent P/E ratio was 46.45 while Walmart trades a 31.09 times earnings.
Edge: Walmart
The Winner: WMT
While Costco appears to have the best growth prospects, that isn’t enough to make it the best investment. Walmart trades at a lower valuation, and its higher dividend yield means you will receive more in dividend payments than you would on the same amount of money invested in Costco. That makes Walmart the winner. Things can change fast in the stock market, though, so be sure to re-evaluate your investments on a regular basis.
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