The retail industry, once a modest $3 trillion market in 2000, has skyrocketed to over $7 trillion by 2022, boosted by the surge in online shopping and digital payment methods. As a result, companies have seized these new opportunities to bolster their earnings. Apple and Costco Wholesale, operating in different retail domains, have both achieved substantial triple-digit stock growth over the past five years, solidifying their positions as consumer favorites.
Apple’s Ascendancy
Despite offering a more limited product range than its rivals, Apple stands as the 11th among the top 100 leading U.S. retailers, reports Statista. Unrivaled in popularity, its devices such as the iPhone, MacBook, AirPods, and iPad have captivated consumers. Apple’s seamless design language and integrated ecosystem across its product line have fostered unwavering consumer loyalty.
In fiscal 2023, the tech behemoth experienced a 3% year-over-year revenue decline due to macroeconomic headwinds and reduced consumer spending. However, recent data suggests a potential revival in the tech market. During the fourth quarter of 2023, smartphone shipments grew by 4% year over year after almost two years of declines. Similarly, PC shipments rebounded, registering a 0.3% increase. Although these market improvements have yet to manifest in Apple’s earnings, they present encouraging signs for 2024.
Amidst challenging market conditions, Apple generated nearly $100 billion in free cash flow last year. With a flourishing digital services business, forays into artificial intelligence, and robust cash reserves, Apple is poised for a resurgent future.
Costco’s Triumph
Ranking third among the 100 largest U.S. retailers, Costco has outpaced many of its American counterparts in stock growth over the past half-decade. The company’s distinctive business model charges an annual subscription fee, granting access to wholesale prices. While product sales may not be a substantial profit driver, Costco has seamlessly supplemented its revenue via its membership-based approach.
In fiscal 2023, Costco attained over $6 billion in profits, with membership fees contributing 73% to this sum. Bolstered by a remarkable 90% subscription renewal rate, Costco’s retail prowess is evident. The company has consistently pleased investors with its sustained growth and unexpected, significantly larger dividends than its standard dividend yield of 0.61%. On Jan. 12, Costco disbursed a dividend of $15 per share, following its last special dividend of $10 per share in 2020.
With an enviable business model and content investors, Costco’s stock presents itself as an enticing choice for retail investment.
The Better Pick in 2024: Apple or Costco?
While Apple and Costco both exert significant influence within their retail segments, industry leadership doesn’t inherently equate to a justified stock valuation. An analysis of the data indicates that Apple’s stock presently offers superior value compared to Costco’s.
A comparison of Apple and Costco’s price-to-earnings ratios (P/E) and price-to-free cash flows (P/FCF) reveals that Apple’s stock is currently the more economical option. Calculated by dividing the stock price by earnings per share, P/E and dividing market capitalization by free cash flow, P/FCF elucidate the value a stock presents. Apple emerges as the better investment for 2024, boasting lower figures across both metrics.
Supported by an evolving tech market and expeditions into high-growth sectors such as AI, Apple’s stock promises to deliver greater value in 2024.
Data by YCharts
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Dani Cook 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.