Better Stock to Buy Right Now: Costco vs. Home Depot todayheadline

The retail sector is truly massive. In the U.S. alone, $7.3 trillion was spent in 2024. And within this market, there are certainly some huge companies that might make for smart investment opportunities.

Two top retail companies that come to mind are Costco (COST -1.67%) and Home Depot (HD -0.40%). In their separate niches, both have generated substantial wealth for their shareholders since their respective initial public offerings in the 1980s. But between Costco and Home Depot, which would be the better stock to buy right now?

Low prices, quality merchandise, and no frills are Costco’s not-so-secret recipe

Costco’s value proposition could not be clearer. It offers high-quality goods across a wide range of categories at low prices. Its loyal customers know they are foregoing a fancy shopping experience, as Costco’s warehouses are a no-frills environment. What it offers instead are bulk quantities of merchandise and a treasure hunt atmosphere.

Customers love Costco, as evidenced by its steady growth. The company’s same-store sales increased 5.3% in its fiscal 2024 (which ended Sept. 1), and they’ve climbed in each of the past three fiscal quarters. Despite macroeconomic uncertainty, it remains a top shopping destination.

During its fiscal 2025 Q3 (ended May 11), Costco collected $62 billion in net sales. This makes it one of the largest retailers on the planet. Combine this volume with a limited number of stock-keeping units (when compared to other supermarket chains), and it becomes clear why Costco has tremendous buying power with its suppliers, which helps it keep prices low for shoppers.

Retail is a low-margin game, but Costco has been able to post rising profits partly because of its membership business model. Customers are willing to fork over $65 annually for a basic membership because they know that their savings at the cash register over the course of a year will more than make up for it. Costco’s membership renewal rate in the U.S. and Canada was 92.7%in the third quarter.

As macro headwinds persist, Home Depot pushes harder into the pro market

Home Depot is struggling to grow its business in the current macroeconomic environment, which features higher interest rates than people have become accustomed to and growing consumer hesitation toward big-ticket purchases.

Its same-store sales are expected to increase 1% in fiscal 2025. But they declined in the previous two fiscal years. Demand for home improvement goods was strong in the first few years after the onset of the pandemic, but things have cooled.

However, there are some favorable industry tailwinds blowing for Home Depot. U.S. housing supply is low relative to demand. On average, the nation’s housing stock is getting older. And there are trillions of dollars in untapped home equity that owners could use to help pay for renovations and upgrades. Home Depot should see better demand if and when the economy improves.

Moreover, the company is playing offense, making acquisitions to strengthen its position. Last year, Home Depot purchased building materials distributor SRS Distribution for more than $18.2 billion. And it was recently announced that the SRS subsidiary bought peer GMS for $4.3 billion. 

The moves have a clear objective, which is to further entrench Home Depot as a top destination for professional customers such as contractors, roofers, plumbers, and electricians. This is an extremely valuable customer group, mainly because they spend a lot more than DIY customers.

The best stock pick is not the best business

Costco’s regularly strong financial results regardless of the economic backdrop show that the warehouse club operator is the better business. The market agrees. As of July 14, its shares trade at a lofty price-to-earnings (P/E) ratio of 55.

Home Depot might be struggling right now, but it’s still the undisputed leader in the home improvement industry, which will return to better growth eventually. With its stock trading at a P/E multiple of 25, it’s the better investment right now.