Costco Better for Long-Term Holding Than Walmart? Valuation Is a Concern
Costco was assessed as more suitable than Walmart for long-term holding. The reasons cited included loyal membership-based customers, a simple business structure, and room to raise membership fees. However, a warning was also issued that Costco shares trade at 49times earnings and that annual growth is forecast at 9~10%, which could mean lower expected returns.
Costco was summarized as more suitable than Walmart for long-term holding. From an investor's perspective, the key reasons are its membership-based loyal customer base and relatively simple business structure.
Costco secures stable cash flow from membership fees. The possibility of raising membership fees was also cited.
However, Costco shares trade at 49times earnings per share. Expected annual growth was presented at 9~10%, prompting the observation that valuation could limit returns.
Walmart was assessed as facing intensifying competition from Amazon in online retail and groceries. Separately, the report noted that Walmart had increased the share of its own e-commerce business and grown advertising revenue.
In summary, the report identified Costco as a long-term holding candidate because of its membership-driven stability. At the same time, it warned that the high share-price level could weigh on long-term returns.
The factors presented for review included whether membership fees would change, Costco’s current share-price level, and the growth trends in Walmart’s e-commerce and advertising revenue. It recommended making investment decisions after considering these factors together.
Sources: The Motley Fool
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