Costco vs. Walmart Stock: What's the Better Consumer Staples Buy?

Costco Wholesale (NASDAQ: COST) and Walmart (NASDAQ: WMT) are both high-quality consumer staples companies with durable competitive moats. Neither stock is cheap, and the better stock right now depends on what you're aiming to optimize -- but on the whole, Walmart is the buy right now.

If you want a higher-growth, membership-driven compounder that rewards long-term holders, Costco stock is the pick. If you want lower valuation, more near-term earnings levers, and exposure to one of the fastest-growing retail advertising businesses in the world, Walmart stock has the edge. For most investors building a core position in consumer staples today, Walmart offers the better risk-reward proposition at current prices.

Costco commands a higher multiple for good reason. Its membership renewal rate in the U.S. and Canada is 92.1%, while global renewal is 89.7%. Membership fee revenue hit $5.3 billion in fiscal 2025 and grew another 13.6% in the second quarter of fiscal 2026, even after absorbing a membership fee hike in late 2024. That recurring revenue is essentially annuity income. The revenue is predictable, durable, and nearly impervious to recessions. When Costco raises its membership price, its members renew anyway.

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But that premium is already priced into the stock. Costco shares trade at 53 times trailing earnings, leaving little margin for error.

Walmart's hidden growth engine

The more interesting story for near-term investors is Walmart's diversification into advertising and commerce. The company grew global advertising revenue 37% to $6.4 billion annually, with U.S. e-commerce up 27%. Walmart Connect, its retail media network, transforms the company's enormous traffic into high-margin ad dollars -- a business model with economics structurally closer to Meta Platforms or Alphabet than traditional grocery.

Walmart also achieved 27% operating income growth and continues to push into financial services and healthcare. That earnings diversification is why the company's forward multiple still sits below Costco's, even though Walmart arguably has more near-term profit acceleration built into its model.

The case for Costco

Make no mistake: Costco is not a company to dismiss at any price. Its 26% return on invested capital versus Walmart's roughly 16% is a meaningful part of why the market has consistently paid a premium for the stock year after year. The membership model creates a structural margin floor that Walmart -- with its intentionally thin 11% gross margins -- cannot replicate.

Costco's international expansion and growing e-commerce penetration are an addition to a business that already delivers some of the most reliable consumer traffic in retail. The Q1 fiscal 2026 net sales of $173.26 billion (up from $158.87 billion in the prior-year period) confirm it is doing so without a meaningful deterioration in same-store traffic.

Which one is a buy?

The honest answer is that both are businesses worth owning over a long time horizon, but right now, the risk-reward skews meaningfully in Walmart's favor. Costco is a compounding machine, full stop. Its 92.1% U.S. membership renewal rate is one of the most durable moats in all of retail, and its 26% return on invested capital is the kind of number that justifies a premium valuation. The problem is that the premium is already fully priced in.

Walmart, by contrast, is in the middle of a genuine business model transformation that the market hasn't fully credited yet. Yes, it's the world's largest retailer. Yes, everyone knows it. But most investors still think of Walmart as a low-margin grocery and general merchandise operation. What it's quietly becoming is something different: a high-margin data and advertising platform atop a low-margin retail engine.

Walmart Connect carries margins that look nothing like selling paper towels. Retail media is closer to software economics. Once the advertiser relationships and measurement tools are in place, incremental revenue flows at very high incremental margins.

For comparison, Amazon's advertising segment, which began as a similarly overlooked line item, now generates over $56 billion in annual revenue and is one of the company's most profitable divisions. Walmart is roughly five to seven years behind Amazon on that curve, which means investors buying today are buying into the early innings of that margin expansion story.

There's also a macro dimension to consider. In an environment where tariff-driven inflation is squeezing lower- and middle-income households, Walmart's core customer base tends to gain incremental wallet share rather than lose it. The company's private label penetration is growing as consumers trade down from name brands, and Walmart's scale gives it negotiating power over suppliers that few retailers can match. Costco benefits from a similar dynamic, but its customer base skews wealthier, making it somewhat less torqued to a consumer downturn thesis.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.