Costco vs. BJ’s Stock: Which Is a Better Investment?
Picking out individual stocks is never easy. What makes one stock a better choice than the other?
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For example, if you wanted to own stock of a big-box retailer, should you go with Costco (COST) or BJ’s Wholesale Club (BJ)? It’s impossible to declare with certainty which stock will be the winner, but there are some things to look at that can help guide the decision.
Growth Potential
For better or worse, a company’s growth – specifically, its future prospects for growth — is a top factor in how its stock will get priced by the market. All other things being equal, the company growing the fastest will see its stock price perform the best. A simple way to gauge a company’s future growth is to look for the average analyst growth rates. Many investment firms and research companies employ analysts who specialize in following a specific company. Their estimates are usually fairly accurate. In Costco’s case, analysts expect it to grow at just under 10% per year over the next five years. The estimated growth for BJ’s is 8% over the same time period.
Valuation
At the end of the day, the price you pay for a stock is what will determine your return. Even the very best companies can be a bad investment if you overpay. One of the most common valuation metrics used for stocks is the price to earnings (P/E) ratio. BJ’s trailing twelve month P/E ratio is around 19.5, while Costco’s is 47.47 — meaning that Costco is being valued more richly by the market by a wide margin.
Edge: BJ’s
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Costco is a great company, but the extra two percent of growth a year really doesn’t justify paying a multiple nearly two and a half times higher. BJ’s offers decent growth at a much lower valuation ratio than Costco, making it likely to be the better investment right now. Things can change fast — remember to do your own research before you commit.
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This article originally appeared on GOBankingRates.com: Costco vs. BJ’s Stock: Which Is a Better Investment?
