Costco (NASDAQ: COST) And Amazon (NASDAQ:AMZN) are two of the most resilient retailers in the world. Costco warehouse stores attract many shoppers with their bulk discounts, and build loyalty with their paid memberships. Amazon is the world’s largest e-commerce company and maintains a wide moat by offering deep discounts, cheap shipping options, and other benefits to more than 200 million Prime members worldwide.

Costco’s focus on bulk purchasing, demanding memberships and steady expansion of physical stores in the United States and foreign markets has protected it from Amazon’s growth as other brick-and-mortar retailers were withdrawing. Amazon has also leveraged higher-margin revenue from its cloud business to subsidize the expansion of its lower-margin e-commerce business – and this unique strategy has given it an advantage over many of its brick-and-mortar retail competitors .

Image source: Getty Images.

Over the past three years, Costco shares have soared 80%, while Amazon shares have only gained 13%. Let’s take a look at why the wholesale retailer outperformed Amazon by such a wide margin – and whether it will remain the best buy for the foreseeable future.

Why did the bulls love Costco?

Costco’s long-term expansion is primarily due to new store openings, stable comparable sales, cardholder growth, and high renewal rates. He consistently checked all four of these boxes from fiscal 2020 through fiscal 2024 (which ended in September).

Data source: Costco. *Excluding gas and excluding exchange. YOY = Year after year.

From fiscal 2020 to fiscal 2024, Costco’s revenue grew at a compound annual growth rate (CAGR) of 11%, while its EPS grew at a CAGR of 16%. Its growth accelerated in fiscal 2021 and 2022 as the pandemic pushed more people to stock up on packaged foods and consumer staples, but it continued to grow over the next two years , even though inflation has dampened consumer spending. It also recently increased its contributions for the first time in seven years to offset this pressure.

Costco’s growth rates aren’t mind-blowing, but its resilience, scale, and strength make it a good safe-haven investment. From FY 2024 to FY 2027, analysts expect its revenue and EPS to grow at a CAGR of 7% and 10%, respectively. That outlook is stable, but its stock looks a little expensive, at 50 times this year’s earnings.

Why has the market been less enthusiastic about Amazon?

Amazon generates most of its revenue from its e-commerce marketplaces, but it makes the bulk of its profits from its Amazon Web Services (AWS). cloud platform. Its e-commerce and cloud computing businesses both saw rapid growth in 2020 and 2021 as the pandemic pushed more consumers to shop online and more businesses to upgrade their cloud infrastructure.

Data source: Amazon.

But in 2022, Amazon’s two growth engines spat As pandemic-induced tailwinds have dissipated, inflation has dampened consumer spending, and rising rates have caused many companies to limit their cloud spending. It also became unprofitable for the full year due to its large investment in the struggling electric vehicle maker. Rivien turned against him.

Over the past eighteen months, Amazon’s growth has stabilized as the macroeconomic environment warmed up again. Its e-commerce business has recovered by prioritizing faster deliveries, selling more everyday essentials and expanding into more countries. AWS’s growth has accelerated again as more companies have upgraded their cloud infrastructure to accommodate the growing use of new generative AI applications.

From 2023 to 2026, analysts expect Amazon’s revenue and EPS to grow at a CAGR of 11% and 35%, respectively, as near-term headwinds dissipate. Based on these expectations, its stock still looks reasonably valued relative to its growth, at 33 times next year’s earnings.

Best buy: Amazon

Costco has had a great run, but its valuations have outpaced its growth rates. Therefore, I think Amazon – which has been vastly underestimated over the past three years – could have more upside potential than Costco over the next three years as the macroeconomic environment improves Finally.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions at Amazon. The Motley Fool holds positions and recommends Amazon and Costco Wholesale. The Motley Fool has a disclosure policy.