Why Amazon Is Cheaper Than Walmart and Costco: One Answer

According to a report from Motley Fool, analysts ask: why is Amazon (AMZN) cheaper than Walmart (WMT) and Costco (COST) on a valuation basis? The answer lies in the business model.

Rating Change

This is not about a specific analyst rating change, but a valuation comparison among the three companies. Amazon trades at a P/E of about 40, while Walmart and Costco trade at 24 and 48 respectively. Although Amazon's P/E is higher than Walmart's, it is lower than Costco's, raising questions.

Analyst Rationale

Analysts believe Amazon's relatively lower valuation is due to its lower profit margin compared to Costco. Amazon reinvests heavily in growth and expansion, compressing current earnings. In contrast, Costco enjoys higher margins thanks to its membership model, justifying its higher multiple.

Context

The stock performance of the three companies varies: Amazon rose 20% over the past year, while Walmart rose 15% and Costco 25%. Other analysts see Amazon's valuation as attractive if it continues strong growth in cloud computing and advertising.

Conclusion

The valuation gap reflects different strategies: Amazon focuses on long-term growth with thin margins, while Costco excels in operational efficiency. Investors need to align their expectations with their preferred business model.