The retail industry has witnessed a significant upsurge, with the U.S. market value skyrocketing from $3 trillion in 2000 to over $7 trillion in 2022. The proliferation of online shopping and digital payment methods has expanded the industry’s possibilities and avenues for earnings. Two major players in this industry are Apple (NASDAQ: AAPL) and Costco Wholesale (NASDAQ: COST). Even though these companies operate in contrasting retail sectors—consumer electronics and wholesale grocery respectively—they have both amassed triple-digit growth over the last five years and established enormous customer loyalty.
Both Apple and Costco have exciting developments in the pipeline for the new year, making it an opportune time to consider an investment in their stocks. So, let’s analyze whether Apple or Costco stock is the better choice in 2024.
The Case for Apple
Despite offering a smaller product range compared to most retailers, Apple ranks 11th out of the top 100 leading U.S. retailers, according to Statista. The unparalleled popularity of Apple’s gadgets like the iPhone, MacBook, AirPods, and iPad is unprecedented. Additionally, a user-friendly design language and an interconnected ecosystem across all Apple products encourage long-term consumer retention.
In fiscal 2023, Apple experienced a 3% year-over-year decline in revenue. The company faced macroeconomic headwinds, resulting in reduced consumer spending. However, recent data indicates a potential recovery in the tech market. The fourth quarter of 2023 witnessed a 4% year-over-year increase in smartphone shipments after nearly two years of declines. Similarly, PC shipments also turned to growth, rising by 0.3%. Although these market improvements have not yet manifested in Apple’s earnings, they present a promising sign for 2024.
Despite market challenges, Apple generated nearly $100 billion in free cash flow in the previous year. With a thriving digital services business and forays into AI, the company stands resilient with its brand power and robust cash reserves, poised to stage a compelling comeback and thrive over the next decade.
Costco’s Standpoint
Costco stands third among the 100 largest U.S. retailers. As depicted in the chart below, the company has outperformed many major American rivals in terms of stock growth over the past five years.
Data by YCharts
The company has garnered global consumer acclaim with its distinctive business model, wherein it charges an annual subscription fee for access to wholesale prices. While product sales contribute relatively little to its profits, the membership-based business model has rectified this shortfall.
In fiscal 2023, Costco recorded over $6 billion in profits, with membership fees constituting 73% of that figure. With a subscription renewal rate of 90%, the company is excelling in the retail arena.
Moreover, Costco has consistently pleased investors with substantial growth and unexpected dividends that far exceed its usual dividend yield of 0.61%. On Jan. 12, the company disbursed a $15 per share dividend, with its last special dividend of $10 per share released in 2020.
The amalgamation of a victorious business model and contented investors mirrors Costco’s stock as an apparent choice for retail investment.
Deciding Between Apple and Costco
Although Apple and Costco reign in their respective domains, leading an industry does not automatically equate to a justified stock price. The data below indicates that Apple’s stock currently offers considerably more value than Costco.
Data by YCharts
This chart juxtaposes Apple and Costco’s price-to-earnings ratios (P/E) and price-to-free cash flows (P/FCF). In both valuation metrics, Apple’s lower figures indicate that its stock is the more prudent choice.
The P/E is calculated by dividing a company’s stock price by its earnings per share, while P/FCF divides its market capitalization by free cash flow. Lower figures in both metrics signify greater value offered by a stock. Apple triumphs on both counts, with its share price being a bargain in comparison to Costco’s. Accompanied by a burgeoning tech market and expansions into high-growth sectors like AI, the company emerges as the superior stock in 2024.
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Author has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Costco Wholesale. The Motley Fool has a disclosure policy.