It's likely that most consumers, at least in the U.S., have shopped at both a Home Depot (HD -0.77%) and a Costco (COST -0.82%) location at least once in their lives. The former is a leader in the home improvement space, while the latter excels at selling general merchandise. Combined, they generate hundreds of billions of dollars in annual revenue.
Shares of both businesses trade below their all-time high prices. But which of these top retail stocks is the better buy right now with $1,000?
Image source: Getty Images.
Short-term struggles, long-term optimism
Home Depot reported revenue of $39.9 billion in Q1 2025 (ended May 4), which exceeded Wall Street forecasts and represented a 9.4% year-over-year gain. However, investors shouldn't let the top-line figure take their attention away from the company's ongoing struggles.
High mortgage rates, coupled with an uncertain macro backdrop, don't bode well for Home Depot. Same-store sales (SSS) declined 0.3% in the fiscal 2025 first quarter. This follows a 1.8% drop in fiscal 2024 and a 3.2% fall in fiscal 2023. It makes sense that when households are worried about the economy, they will hesitate to spend on expensive home improvements.
There are reasons to be optimistic about the long term. The home improvement industry is massive, estimated to be worth $1 trillion. Home Depot commands just 16% market share. It should be able to win customers over from smaller stores that don't have the same inventory availability or omnichannel capabilities.
The leadership team calls out the trillions of dollars of untapped home equity that has been built up since the start of the pandemic. This should create pent-up demand for Home Depot should macro conditions ease up.
Homes in this country are also getting older. "The housing stock is aging, and 55% of homes are 40 years or older," CEO Ted Decker said on the Q1 2025 earnings call. "And we know that as homes get older, they require more maintenance and updates." This supports revenue growth for Home Depot in the future.
As steady as they come
Costco shines bright when viewed next to Home Depot. The company continues to report positive SSS growth, showcasing the durable demand it experiences. Even in difficult economic times, consumers should flock to Costco to buy whatever they need at low prices and in bulk quantities.
The business has a tremendous scale advantage that gives it a leg up against rivals. The average Costco location carries just 4,000 different stock-keeping units, about 13% of what the average supermarket sells. Given that the company raked in $62.5 billion in net sales in Q2 2025 (ended Feb. 16), it has unmatched buying power over its suppliers. This allows Costco to obtain very favorable pricing on the merchandise it purchases from vendors, which leads to ongoing savings for shoppers who visit its warehouses.
Low prices on high-quality goods should keep customers loyal. Costco drives even more loyalty by running a membership model. This brings in a high-margin, recurring revenue stream. In the U.S. and Canada, memberships typically carry a 92% or above renewal rate, demonstrating how popular they are among households.
Producing a consistently rising earnings stream isn't an issue for the leadership team. This supports a quarterly dividend payout of $1.30. While that yields just 0.51% today, Costco boosts shareholder returns by shelling out one-time special dividends, the last one being a $15 dividend in January 2024. Investors can expect these to continue every few years.
Better business or better stock
In the past five years, Costco's stock price has climbed an impressive 236%, while Home Depot's is up just 56%. I believe this is a clear indication that the market appreciates the former's ongoing financial success, pointing to Costco as the higher-quality business of these two.
But the valuation is far from cheap. As of this writing, Costco shares trade at a price-to-earnings ratio of 59.9. This is 140% more expensive than Home Depot's 24.9 multiple.
Investors who want to own the better company should go with Costco. However, those who prioritize valuation in their decision-making process will find that Home Depot is the better buy right now.
