Which Is the Better Buy Right Now: Costco or Home Depot Stock?

Key Points

• Costco's ability to keep prices low stems from its huge scale, which supports ongoing membership growth.

• Home Depot’s same-store sales are increasing, but customers remain concerned about the broader economic backdrop.

• Investors must consider valuation as part of their stock-selection process.

• 10 stocks we like better than Home Depot ›

Costco (NASDAQ: COST) is known for selling high-quality merchandise at some of the lowest prices around. Its warehouse clubs are a favorite of consumers.

Home Depot (NYSE: HD), meanwhile, has a commanding position in the home improvement industry. It generates about double the amount of revenue that smaller rival Lowe's does.

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These are undoubtedly two of the biggest retailers in the world, but which of these businesses is the better investment right now?

Image source: Getty Images.

Costco is the better business

Costco is a dominant force in the retail world. It has consistently increased its same-store sales (SSS). At a time when consumer confidence has taken a hit, the company's SSS rose by 5.7% in its latest fiscal quarter (third-quarter 2025, ended May 11). This came mainly from more foot traffic, with a small contribution from a higher average ticket size.

What makes the business unique is its membership model. Costco requires that its shoppers pay annual fees to visit its warehouses. It's a strategy that encourages repeat visits and more spending. These memberships bring in a predictable, recurring, and high-margin revenue stream for Costco. As of May 11, there were 79.6 million membership households worldwide, up 6.8% year over year.

Even with the monster success of Amazon and its Prime membership, Costco has been able to keep growing. This gives me confidence that there's a very low probability that Costco will get disrupted, even with the popularity of online shopping. The warehouse chain's customers clearly appreciate the in-person experience. It's characterized by everyday low prices, which are a mainstay because of Costco's huge scale and negotiating leverage over its suppliers.

Costco's ongoing success, which doesn't seem to be influenced much by changes in the broader macro environment, has not gone unnoticed by the market. The business should continue to see its sales and earnings rise in the years ahead. Investors love the reliability, and they've bid up shares to the point that the current price-to-earnings (P/E) ratio sits at a lofty 55.6. That's an expensive entry point, regardless of how wonderful the company is.

Home Depot is the better stock

Home Depot reported a small SSS increase of 1% in its latest fiscal quarter (second-quarter 2025, ended Aug. 3). There was growth among both DIY and pro customers. But the company is focused on strengthening its position with the latter, as its recent acquisitions of building products distributors SRS and GMS demonstrate.

The business put up double-digit revenue growth in fiscal 2020 and fiscal 2021, but things have slowed down dramatically. "When we talk generally though to our customers, each of our sets of consumers and pros, the number one reason for deferring the large project is general economic uncertainty," CEO Ted Decker said on the Q2 2025 earnings call.

People don't feel the need to spend big money on an upgrade or renovations. Compared to Costco, Home Depot obviously has greater exposure to the overall economic backdrop.

However, the long-term picture remains positive. There is over $11 trillion in untapped home equity that can be accessed to fund home projects. An ongoing housing inventory shortage incentivizes people to stay in their existing homes and spend on upgrades. The increasing age of homes across the U.S. also means more maintenance. These factors support demand for Home Depot as we look ahead.

To be sure, though, Home Depot continues to struggle in this environment. It might not return to posting solid growth until interest rates come down and the overall housing market gets a boost. However, based on its P/E ratio of 27.3, which is significantly cheaper than Costco's, it's the better stock to buy right now.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.