Costco Wholesale Corporation (NASDAQ:COST) and Walmart Inc. (NASDAQ:WMT) have returned -0.71% and -5.38%, respectively, during the last six months, as of October 15. This compares to a 21.5% return for the Insider Monkey Billionaire Index and 15.74% for the State Street SPDR S&P 500 ETF Trust.
Costco and Walmart have been ahead of the competition for a while, but both retail giants have different ways to go about it. Costco gets customers to keep coming back through its membership model, low prices, and popular Kirkland Signature brand. Walmart has a different opportunity. It can use its huge customer base and store network to grow its online business, advertising, and third-party marketplace. These businesses could help Walmart make more money from each sale over time. Costco, however, has already shown that its model works, with customers renewing their memberships and continuing to spend more.
Costco Wholesale Corporation ranks 7th in our list of 10 Best Stocks to Buy for the Next 20 Years. Click HERE to find out other stocks on the list.
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Costco’s Advantage Is Visible in Its Numbers
Costco generated $303.2 billion in revenue in fiscal 2026, including $5.9 billion from membership fees. Net income rose a solid 14% from the previous year to $9.2 billion, while comparable sales grew 6.6%, excluding gas and foreign exchange effects. The company ended the year with 84.1 million paid members, and its renewal rate in the US and Canada stood at 92.3%. The numbers suggest that Costco is getting more out of its existing members while continuing to bring in new ones.
The retailing giant’s membership fees help it keep prices low, and Kirkland Signature gives customers another reason to shop there. The brand offers products that are often cheaper than national brands without giving up much on quality.
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Costco’s limited SKU strategy of stock enables it to purchase larger quantities of each item and thus secure better deals from suppliers. While other retailers are able to match its prices on a number of products, it is much more difficult for them to match both its buying power and the customer loyalty that Costco has developed over the years.
That said, Costco still has to work to keep growing. Membership growth is slowing. Membership income rose 7.3% in Q4, compared with 13.6% in Q2 and 10.7% in Q3. Also, opening new warehouses requires significant investment. The company needs these stores to generate good returns without losing sight of what keeps existing members coming back. Digital sales grew about 21% in fiscal 2026, giving Costco another avenue for growth. But the business ultimately comes down to whether members continue to see enough value to renew their memberships and spend more.
COST ranked 10th in our list of the 10 Best Quality Stocks to Buy Right Now. To see which stocks outranked it, click HERE.
Walmart’s Opportunity Is to Improve Its Earnings Mix
Walmart’s second-quarter fiscal 2027 results show why it should not be viewed solely as a low-margin retailer. Global e-commerce sales grew 23%, advertising increased 38%, US Marketplace sales rose 52%, and membership fee revenue grew 17%. Yet Walmart US comparable sales increased just 2.6%, suggesting that the faster-growing digital businesses are becoming an increasingly important part of the growth story.
These growth rates are encouraging, but they don’t tell the whole story. Walmart does not disclose enough detail in these headline figures to calculate precisely how much advertising and Marketplace contribute to operating profit. The investment case depends on those businesses continuing to scale and adding profits faster than the company has to spend to support them.
Walmart Inc. can use its existing stores to fulfill online orders, giving it an advantage over retailers that rely more heavily on separate warehouses. Its large customer base also makes the platform more attractive to advertisers and third-party sellers. But Amazon is a strong competitor in all three areas, so Walmart’s size alone won’t be enough. The real opportunity lies in combining its store network and grocery business with its growing digital operations. If Walmart can turn that into higher profits without spending too much to keep growing, it could strengthen its competitive position.
On June 26, we wrote an article about 10 Best Stocks to Buy According to Billionaire Richard Chilton. The number 1 stock on that list has returned almost 50% since. Costco ranked 2nd on that list.
Valuation: Is Costco Worth the Premium?
Costco trades at 40.32x forward earnings, compared with 38.02x for Walmart. That gap is negligible.
Costco’s net income grew 14% in fiscal 2026, while Walmart’s rose about 2.6% over the 12 months through July 2026. Walmart is a much larger business, so slower growth isn’t surprising. Costco has shown that it can grow earnings while keeping members loyal and expanding its warehouse network. That gives investors a clearer picture of what they’re paying for. That said, Walmart’s net income is swayed heavily by gains and losses on equity investments. Still, Costco’s revenue growth has easily outstripped Walmart’s over the years.
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Walmart’s advertising and online marketplace businesses are growing quickly, and both could lift profits over time. If that happens, today’s earnings could understate what the business is capable of earning in the future. But growth in these businesses doesn’t automatically mean they will make a meaningful difference to the bottom line. Walmart still has to prove that it can drive lasting profit growth while it keeps prices low. Tariff refunds also boosted its recent operating income.
At these valuations, Costco looks like the better bet. Its customer loyalty and earnings growth are already evident, while Walmart’s upside depends more on how well it develops its newer businesses. Walmart could outperform if those investments pay off, but investors are being asked to put more faith in that outcome. For now, Costco’s premium looks reasonable, even if the difference between the two stocks isn’t large.
WMT ranked 4th in our list of the 10 Best Bear Market Stocks to Invest In Right Now. To see which stocks outranked it, click HERE.
Market Sentiment
Hedge fund sentiment toward Costco was mixed in Q2 2026. The number of hedge funds holding the stock declined to 104 from 107 in Q1, but the total value of their positions increased from $10.40 billion to $11.59 billion. This suggests that while fewer funds held Costco, the aggregate value of their investments increased.
Walmart, on the other hand, saw stronger hedge fund interest. The number of hedge funds holding the stock increased to 111 from 99 in Q1, while the total value of their positions rose from $10.94 billion to $11.12 billion. Both figures moved higher, suggesting that hedge fund sentiment toward Walmart strengthened during the quarter.
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This article is originally published at Insider Monkey.
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