BJ's vs Costco: Is cheap merchandise really a good deal?

There is an interesting question: why are both membership-based warehouse retailers, Costco valued at 44 times PE, while BJ's Wholesale Club (NYSE: BJ) is only at 19 times?

You will understand after comparing the data.

BJ's Latest Quarter Performance:

• Revenue increased by 4.9% year-on-year to $5.35 billion
• Comparable sales growth was only 1.1% (1.8% after excluding oil price changes)
• Membership fee revenue increased by 9.8%, reaching 126 million dollars.
• Operating profit instead decreased by 4.8%, and net profit fell by 2.4%—the reasons being the rising labor costs and advertising expenditures.

The story of Costco is completely different:

• Revenue growth of 8.2%, reaching 275.2 billion USD
• Comparable sales (excluding oil prices and exchange rates) increased by 6.4%
• Over 900 stores, BJ's has less than 300 stores.

How big is the valuation difference?

BJ's: 19 times PE, 0.6 times PS Costco: 44x PE, 1.4x PS

Why is there such a big difference? Costco has a large scale, fast growth, and a strong brand, with each store's sales significantly outperforming BJ's. Investors are clearly paying a premium for this advantage.

But cheap does not mean low quality

BJ's current valuation looks enticing, but the question is: can this company accelerate its growth? Under the pressure from Costco, Sam's Club, and traditional supermarkets, BJ's needs to prove that it has a unique advantage. From the recent financial report, the profit growth is weak and cost pressures are significant, which is the real reason for its discounted valuation.

However— If you think Costco's valuation is too high, BJ's is actually a good alternative. Although the growth rate is slow, the risks are low, and the membership fees are steadily increasing. This is a trade-off between “safety first” and “high growth.”

Numbers speak. Whether BJ's is worth buying depends on how slow of a growth rate you can accept.