Because it is the best investment choice of the year

PriceSmart NASDAQ: PSMT stocks soared on second-quarter results and outlook, but didn’t hold onto gains. As ominous as the candle is, the pullback is an interesting entry point that could be among the smartest buys of the year. Nothing in the report signals weakness or decline in value and extenuating circumstances exist. The March CPI was released soon after the report and left the entire stock market lower. Because PriceSmart is less heavily traded, with fewer than a million shares traded on average each day, its price decline has been amplified.

Among the details that investors should rejoice about is the special dividend. The board approved a special dividend due to excess cash and nearly doubled the annual payout. The regular dividend is worth 1.4% annually, the $1 special payment is worth another 1.25%, and business is only getting better. The special dividend will be payable to shareholders of record on April 19.

PriceSmart reports industry-leading growth

PriceSmart had a solid Q2, producing $1.29 billion in net revenue. Earnings are industry-leading 13.2% and beat the consensus reported by Marketbeat by 100 nps. Costco, the world’s largest membership club, grew just 5% in its latest report. PriceSmart’s growth is driven by store comp gain of 8.8%, compounded by the number of new stores and a forex tailwind. The company added four new stores during the quarter; Forex added another 360 basis points to growth.

The subscription figures are impressive. The company reports an 8% increase in store count growth which only partially explains the 14% increase in subscriptions. The bottom line is that PriceSmart continues to gain influence in existing markets by deepening market penetration and service offerings while growing its store base. The plan is to open a 55th store within the next year, increasing presence in Costa Rica, its largest market.

Margin news is mixed. GAAP margin improved significantly, boosting net income by 25%, but adjusted results are less strong. Adjusted margin contracted marginally, leaving earnings up, but only 500 basis points above double-digit revenue growth. Regardless, cash flow is solid, leaving the company in good shape and able to pay the special dividend.

Second quarter balance sheet highlights include a reduction in cash offset by receivables and inventories and a reduction in long-term debt offset by the special dividend. The net result is flat equity and incredibly low leverage ratios. The company’s total liability to equity and long-term debt-to-equity ratios are less than 1x, debt-to-equity ratio is near 0.1x, and it is in fortress condition.

The sell-side likes PriceSmart, but analysts aren’t interested

Marketbeat tracks only two analysts with coverage on PriceSmart, a small figure in line with the low-volume market. However, these analysts rate the stock a Buy and see it trading at $82, which is significant because they agree that it is worth $82 and undervalued. The rating and target are not enough to push the stock higher, but they signal an opportunity. Analysts may start to warm to this name and push it higher.

PriceSmart shares trade at just 18 times earnings, outperforming rivals Walmart and Costco, which trade at 25 and 45 times. It’s doubtful that PriceSmart will advance to 45 times earnings, but even a low single-digit multiple expansion is worth significant upside to investors. Potential catalysts include the dividend, regular distribution growth prospects and future special dividends.

The technical outlook for PSMT stock is higher prices

The stock in the PSMT surged after the release, but the combination of profit taking and bad economic news put a cap on the market, leading to a trend reversal. The candle is large and red, which could lead to a decline in prices, but the market is still above the critical support. Critical support is near $78 and is potentially strong. Institutional activity increased significantly in the fourth quarter of 2023, when price action was declining and may do so again. In this scenario, the PSMT should start to bottom and then recover soon.

Before you consider PriceSmart, you’ll want to hear it out.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and PriceSmart wasn’t on the list.

While PriceSmart currently has a “buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

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