Despite a daily loss of 9.73% and a 3-month loss of 12.82%, Pricesmart Inc (PSMT, Financial) boasts an Earnings Per Share (EPS) (EPS) of 3.76. The question that arises is: Is the stock modestly undervalued? This article aims to answer this question through a comprehensive valuation analysis. Read on to understand why Pricesmart's current valuation might present a potential investment opportunity.
A Snapshot of Pricesmart Inc (PSMT, Financial)
Pricesmart Inc, headquartered in San Diego, California, operates U.S.-style membership shopping warehouse clubs that offer consumer goods at low prices. The company's primary market is in Latin America and the Caribbean, with Central America contributing over half of its net warehouse club sales. Its revenue comprises net warehouse club sales from merchandise sales, membership income from annual membership fees, export sales, and other income, with net warehouse club sales accounting for the majority of the company's total revenue.
Currently, Pricesmart's stock price is $64.7, with a market cap of $2 billion. When compared to its GF Value of $88.15, the stock appears to be modestly undervalued.
Understanding the GF Value of Pricesmart (PSMT, Financial)
The GF Value is a unique measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates.
For Pricesmart, the GF Value suggests that the stock is modestly undervalued. This is based on the historical multiples at which the stock has traded, the company's past business growth, and future estimates of the business' performance. If a stock's price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Pricesmart's current price of $64.7 per share, the stock appears to be modestly undervalued.
Since Pricesmart is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Pricesmart (PSMT, Financial)
Assessing the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength have a higher risk of permanent loss. A good way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. Pricesmart has a cash-to-debt ratio of 1.21, which is better than 70.92% of 306 companies in the Retail - Defensive industry. The overall financial strength of Pricesmart is 9 out of 10, indicating strong financial health.
Profitability and Growth of Pricesmart (PSMT, Financial)
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Pricesmart has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.30 billion and Earnings Per Share (EPS) of $3.76. Its operating margin is 4.63%, which ranks better than 65.59% of 311 companies in the Retail - Defensive industry. Overall, the profitability of Pricesmart is ranked 8 out of 10, indicating strong profitability.
Growth is a vital factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. Pricesmart's 3-year average revenue growth rate is better than 61.03% of 290 companies in the Retail - Defensive industry. Pricesmart's 3-year average EBITDA growth rate is 10.7%, which ranks better than 53.28% of 259 companies in the Retail - Defensive industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Pricesmart's return on invested capital is 11.92, and its cost of capital is 8.56.
Conclusion
In conclusion, the stock of Pricesmart (PSMT, Financial) is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 53.28% of 259 companies in the Retail - Defensive industry. To learn more about Pricesmart stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
