Costco (COST +1.16%) and Home Depot (HD 2.17%) are two companies that shoppers are recognize. Costco dominates the market for general merchandise, while Home Depot is the clear leader in the home improvement industry. Both companies have been incredibly successful investments since their initial public offerings more than four decades ago.
Between these top retail stocks, which is the best to buy right now?
Image source: Getty Images.
Costco posts steady growth in any economic environment
Over the five-year stretch between fiscal 2020 and fiscal 2025, Costco posted positive same-store sales growth in each period. This impressive streak occurred at a time when there were many disruptive events, like the COVID-19 pandemic, supply chain bottlenecks, soaring inflation, rising interest rates, and the current uncertain macro climate.
Despite these headwinds, Costco keeps flexing its muscles. Its net sales increased by 65% during that five-year time frame. Net income climbed by 103% in the same period.
The company's main draw for customers is that it sells a wide selection of goods in various categories, ranging from groceries to appliances, at some of the lowest prices around. But it's able to do this because of its successful membership model, which requires shoppers to pay annual fees. This brings in a recurring and predictable revenue stream, which totaled $1.3 billion in the company's first quarter of fiscal year 2026 (ended Nov. 23). And it keeps customers loyal to the Costco brand.
This is already a retail behemoth. The expansion story isn't over, though. Costco is planning to open 28 net new stores in fiscal 2026.
"We continue to plan for 30 plus net openings per year in future years," CEO Ron Vachris said on the Q1 2026 earnings call.
There is a lot of potential to penetrate international markets. Costco's leadership team highlighted Europe and Asia as focus regions.
NASDAQ: COST
Key Data Points
Macro conditions aren't doing Home Depot any favors
Whereas Costco is the steady grower, Home Depot has shown just how economically sensitive its business is. When households were flush with cash and interest rates were low, sales surged. Revenue increased 19.9% and 14.4% in fiscal 2020 and 2021, respectively. However, demand has been under pressure more recently.
In fiscal 2023 and 2024, same-store sales declined 3.2% and 1.8%, respectively. The management team believes same-store sales will be "slightly positive" this fiscal year. With interest rates at elevated levels and consumers being more discerning with how they spend their money, it makes sense that big-ticket purchases like upgrades and renovations would feel the impact.
"We believe the consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand," CEO Ted Decker said on the company's Q3 2025 earnings call.
But it's not all bad news. Home Depot dominates its industry, as it makes about twice as much revenue as smaller rival Lowe's. The industry is also massive and fragmented. This presents a long-term opportunity for Home Depot to take market share. Home Depot has stronger brand recognition, greater scale, broad inventory availability, and omnichannel capabilities that competitors don't have, giving it a leg up.
Investors can't complain about management's capital return practices. Home Depot paid $6.9 billion in dividends in the last nine months. And it has repurchased shares previously. Being consistently profitable facilitates this sort of activity.
NYSE: HD
Key Data Points
Valuation or quality?
The best stock to choose, in my view, comes down to the preferences of individual investors. Do you care more about paying a lower starting valuation as part of your decision-making process? If so, then the choice is Home Depot. Its price-to-earnings ratio of 25.4 is about half of Costco's 49.6. This isn't to say that Home Depot is necessarily cheap in an absolute sense.
On the other hand, if you want to own the highest-quality company, then Costco is the pick. It continues to prove the robustness of its business model regardless of economic conditions.
