Costco Wholesale Corporation (COST) for the Long Haul

Amazon is an interesting threat in that, while it grew revenue by 26% in Q1 of calendar year 2013, management predicts operating income “between a $340 million loss and $10 million [gain]” for Q2 compared to income of $107 million for Q1 of 2012. The razor-thin margins will catch up with the company; the earnings trends (EPS of -$.09 for 2012 compared to $1.37 for 2011 and $2.53 for 2012) are heading in the wrong direction.

Ultimately, the stock market will stop rewarding Amazon for growing revenue instead of earnings, and the company will have to change strategies to regain profitability. Given that Costco Wholesale Corporation (NASDAQ:COST) has a has a steady growth plan, is growing earnings, and has relatively little debt (Debt/Equity Ratio of 0.5 according to Morningstar), the company can weather the short-term storms and wait Amazon out.

Foolish bottom line

Costco Wholesale Corporation (NASDAQ:COST) treats its employees well and delivers an excellent customer experience (with a strong value perception), a strategy which is clearly paying dividends for the company long term. This company is not going to double in value in the next year, but management gives long-term investors reason to celebrate on each earnings call.

Wal-Mart is caught between competing market forces and has not yet articulated a clear response; avoid it until further notice. Amazon has done a great job of growing revenue, but ultimately investors will need to see earnings and profits with that revenue, and so its model will also fundamentally have to change.

The article Costco for the Long Haul originally appeared on Fool.com and is written by Michael Douglass.

Michael Douglass has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Costco Wholesale. The Motley Fool owns shares of Amazon.com and Costco Wholesale. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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