PSMT - PriceSmart: Quality Retailer At A Fair Valuation

2024-07-31 10:53:16 ET

Summary

• I think PriceSmart is a high-quality growth company at a reasonable price and am long the stock.
• PriceSmart, the "Costco of Central America," has a solid business model with loyal customers, stable profit margins, and a growing store footprint.
• PriceSmart primarily operates in Central America and Colombia. It currently has 54 stores and is opening 3-4 stores per year. New stores earn an 11% return on investment.
• Despite growing revenues and profits by over 10% per year, PriceSmart's share price and valuation multiples have lagged competitors like Costco and BJ's Wholesale Club.

Investment Thesis

I am long PriceSmart ( PSMT ), the leading warehouse club retailer in Central America, as I think this company is undervalued given its strong business model and significant growth prospects. PriceSmart is a well-managed retailer with store and customer metrics all trending in the right direction and remarkably stable margins. Over the past five years, PriceSmart has kept up with ( COST ) and BJ's Wholesale Club ( BJ ) in terms of revenue growth but lagged the two in terms of share price growth. It should only be a matter of time before PriceSmart's share price catches up....

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