Costco is the preferred stock choice over Walmart at current prices.

Costco and Walmart are undoubtedly among the best retailers in the world. Both operate on a very similar business model, which is to offer goods at the lowest possible prices to consumers.

But which of them is the better stock to buy at current market prices? This is the question I want to answer in this video. Based on revenues over the past twelve months, Walmart's revenues are more than double those of Costco.

Walmart generated $736 billion in revenue over the past twelve months, while Costco generated $294 billion.

While Costco has fewer than 1,000 stores. Costco has less than a tenth the number of stores as Walmart, yet it generates nearly half of Walmart's revenue.

To me, this looks like an opportunity for Costco to expand and add more stores. Costco has historically been very conservative in the number of new stores it adds each year. It keeps this number low.

She prefers to maximize revenue from each store.

On the other hand, Costco was slower to expand into e-commerce. The company already owns this business and has been expanding into it. In fact, its e-commerce sector is growing at nearly twice the rate of its overall revenue growth.

But Costco has a less extensive network and fewer features, and Walmart is clearly the leader in this field. So, the biggest thing that surprises people about Walmart and Costco is their profit margins.

Walmart's operating profit margin is only 4.4% over the past twelve months, while Costco's is 3.82%, meaning that for every $100 of sales, these companies make an operating profit of about $4. This includes membership fees.

Sometimes I assign students a project about Walmart and Costco at the university. When the students delve into the details and discover these results, they come to me and express their surprise that these companies are only achieving these levels of profitability.

Their assumption is that since these stores are so popular and generate huge sales, and many customers shop at these locations frequently, every time you visit Costco, you end up spending hundreds of dollars.

Many people assume that these companies make large profit margins, but this is simply not true. This sector is not a profitable sector. Walmart and Costco are not the only companies achieving low profit margins.

In fact, this includes almost every retailer around the world.

But when evaluating Walmart and Costco, this metric becomes increasingly important.

Costco is world-class, and has remained so for a very long time. Its inventory turnover rate of 15.25 far exceeds that of Walmart, and has remained significantly higher than Walmart for most of the past decade, and even more so.

Now, let's look at the valuation. Costco's stock is trading at a forward P/E ratio of 36.3, at a premium of about 10% to Walmart, whose stock is trading at a forward P/E ratio of 34.

Now, these are relatively high valuations for traditional retailers, but this only highlights how much respect Walmart and Costco have earned from investors to impose such a high valuation in a sector that is not very profitable.

At the same time, I calculated a fair price for Costco at 843, and the current market price is 900. Costco stock seems more fairly valued than Walmart.

So, if I had to choose between these two outstanding companies, I would choose Costco today.