Costco vs Walmart: What's the Better Retail Stock to Buy Right Now?

Retail stocks can make for attractive long-term investments due to their stability and continued growth over the years. These businesses may not be high-growth machines, but many of them can be counted on for consistent single-digit growth and are relatively safe options to hang on to even amid market turmoil.

Two of the best retail stocks may be Costco Wholesale (NASDAQ: COST) and Walmart (NASDAQ: WMT). Not only are they big, established businesses, but they also have some enticing long-term growth opportunities and much more room for global expansion. Which one is the better-looking stock to buy today?

Costco's treasure hunt experience seems to never go out of style

Costco is a business that investors may have expected to struggle under more challenging economic conditions. It's a place where shoppers typically overspend and break their budgets rather than save. While shoppers can save when buying in bulk, they often end up buying more than they expected due to the treasure-hunt experience that Costco lures them in with. One warehouse can vary significantly from the next based on product offerings, so there's always an incentive to just take a quick glance at those particularly enticing middle aisles to see what's there.

The company's stellar results confirm that demand remains strong, even though there are reports of consumer sentiment being at record lows. When it last reported earnings in May, the company's comparable sales growth rate for the trailing 36 weeks was convincingly positive, up over 6% in the U.S., Canada, and international markets. And that's without factoring in the impact of higher gas prices and changes in foreign exchange; the raw growth rate was even higher.

With a strong and robust business, Costco makes for an appealing investment to simply buy and hold for the long haul.

Walmart's expanding business may have some intriguing growth potential

Walmart's stores are much more predictable than Costco warehouses, and that isn't hurting its business at all. That consistency makes it a practical one-stop shop for consumers, whether they're loading up on essentials or making big shopping trips. There's less chance of overspending. And with dollar store chains raising prices in recent years to combat inflation, there's even more of a reason for shoppers to simply go to their local Walmart to save money.

When it last reported earnings, for the quarter ending April 30, Walmart's comparable revenue growth rate in the U.S. was up around 4% when excluding fuel. In addition to increasing its store count as a way to grow its operations, the company is also looking to ramp up its ad business as its 2024 acquisition of Vizio has opened up some enticing new opportunities, which can strengthen its margins in the process.

This year, Walmart's stock has declined by about 2%, making its valuation more attractive. At a price-to-earnings multiple of 39, it's a much cheaper stock to own than Costco, which investors are paying 47 times earnings for. At a lower valuation, Walmart's stock could have more upside in the long run.

Which stock is the better buy today?

While both of these stocks are doing well and are big names in retail, Walmart's stock may be the more compelling option today. Its business is better equipped to serve the needs of more value-oriented shoppers. And although Costco's growth suggests its business is still growing well, that may change if there is more pressure on higher-income shoppers due to adverse economic conditions.

Plus, a lower valuation tips the scales even further into Walmart's favor, as paying too much for a stock can result in limited returns, or worse, losses for investors who buy at elevated prices.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.