Amazon (AMZN 3.04%) When costco wholesale (cost 1.00%) are two powerful strains, walmart, dominates retail shopping in the United States. They operate a completely different business model within this category and have been good stocks to own in the past.Which is the better buy going into 2023?
How are you today?
Both Costco and Amazon experienced sales growth early in the coronavirus pandemic, but both have slowed in the current inflation environment.
In the third quarter of 2022, Amazon sales increased 15% year over year. Meanwhile, Costco’s sales for his first quarter of fiscal 2023, which ended Nov. 20, were up 8.1% year-over-year. Amazon’s net income in the third quarter was $2.9 billion, compared with $3.2 billion in the same period last year, and Costco’s net income fell to $1.32 billion in the first quarter of 2023, up from $1.32 billion in the first quarter of 2022. increased to $60 million.
Amazon is a much bigger company, both in terms of revenue and the business it operates. Amazon’s core business is retail e-commerce, but Amazon Web Services has become an important part of the company, and Amazon runs a variety of other businesses, such as device units and just-walk-out technology. It also recently acquired MGM Studios and the iRobot equipment maker.
Costco has stuck to the warehouse membership shopping club model, but it has evolved from a supermarket-style chain to offering everything from full travel services to designer fashions and hearing aid clinics.
What can we expect this year?
Amazon, like many technology companies beyond the boom, started the year by cutting 18,000 jobs. It had already started cutting costs months ago after expanding its operations to meet the accelerating demand caused by the pandemic. Management expects 5% year-over-year revenue growth, a significant slowdown and operating income of $0 billion to $4 billion at the midpoint of the fourth quarter of 2022. Amazon is working its way through this rough patch by continuing to improve the consumer experience and modifying its infrastructure to accommodate lower demand.
Costco tackled the supply chain problem by developing its own supply chain. This has saved time and reduced costs, but some of it is now disappearing as headaches across the supply chain are eased. Costco does not provide quarterly guidance. Management noted that inflationary pressures eased in the first quarter, despite a real slowdown in sales growth in the first quarter, which will be reflected positively in future quarters. should be
Costco generally does well in a recession. Membership renewal rates have stabilized at around 90%, which is fairly consistent in any production environment.
What can we expect in the long term?
All of these trends are likely to continue as time goes on. Amazon invests in all kinds of businesses, powered by the huge amount of sales it makes from e-commerce. Some of these don’t work out, but many do and can be vital growth drivers for your business as a whole. If a recession hits this year, the benefits may not be felt immediately, but Amazon continues to dominate retail, and its stock should recover when the economy improves.
Costco is expanding slowly, but it’s unlikely that there will be much change in its model in the long run. Opening new stores will increase sales and generate more cash. Renewal rates should remain constant, and Costco could add millions of customers each year, as it almost always does.
If you look at the operating profit margin, you can feel the difference between the two companies’ models. Amazon’s operating margins are much higher and lower. Costco is pretty similar regardless of operating environment.
COST Operating Margin (TTM) data from YCharts
Ratings and Dividends
Amazon has always been an expensive stock in terms of valuation. When the stock split last summer, each stock dropped from about $2,000 to about $100. But the price-to-earnings ratio (P/E) around that time was near an all-time low when it dropped to around 50. Still costly compared to his P/E ratio for most other stocks. Even Costco is considered overpriced as it trades at 37 times its earnings over the past 12 months. It also earns a premium for providing reliable growth and income.
Amazon does not pay dividends. It’s usually the older stocks that focus on cash generation paying dividends past the high growth stage. Costco pays dividends that yield him a meager 0.7% at current prices, but he also occasionally pays special dividends to get him into the big leagues.
put it all together
Usually, when comparing two stocks, one is clearly more attractive than the other, even if both are good stocks. I don’t know here.
In my opinion, both Amazon stock and Costco stock offer incredible returns to shareholders. It depends on what you’re looking for in an investment. Amazon has a lot of potential for new business and high growth potential. Costco is a slow burn, with stability and dividends plus strong expansion prospects that make it very worthwhile.
Both of these stocks are recommended as excellent choices in a diversified portfolio.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Cybill has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Costco Wholesale and Walmart. The Motley Fool’s U.S. headquarters has a disclosure policy.
