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Why PriceSmart Stock Jumped 20% Today

By Rich Smith – Updated Sep 23, 2019 at 8:31PM

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PriceSmart's stock price is plummeting! Hurray?

What happened

With its share price down nearly 30% over the 12 months ending last week, PriceSmart (PSMT 2.97%) shareholders have been "smarting" all year long -- but this morning, a miracle happened. All of a sudden, PriceSmart stock skyrocketed more than $12 a share to close the day up 20%.

Why? Turns out, today was the day that S&P Dow Jones Indices added PriceSmart stock to its S&P SmallCap 600 index.  

Cartoon figure uses a pointer to point to a rising stock arrow.

Image source: Getty Images.

So what

And here's the thing: Bidding up PriceSmart stock on its addition to the index isn't entirely illogical. After all, mutual funds and ETFs geared to track the performance of that index will now have to buy shares of PriceSmart so as to accurately reflect the performance of the index. That's good news for PriceSmart's stock price.

And yet, consider how PriceSmart got here in the first place. The SmallCap 600, after all, is designed to track the fortunes of companies with market capitalizations of $600 million to $2.4 billion. PriceSmart stock, with a market cap of $2.2 billion, certainly fits the bill today. But the way it got that market cap was by going down in stock price, not up. (See the aforementioned 30% swoon in stock price.)

Now what

With sales inching up less than 1% last quarter and profits declining 25%, PriceSmart isn't looking like much of a growth stock these days. With a P/E ratio north of 30 times, it's not much of a value stock, either.

PriceSmart shareholders should enjoy the gains they reaped today -- because any additional 20% bumps in stock price could be a long time in coming.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

PriceSmart, Inc. Stock Quote
PriceSmart, Inc.
PSMT
$59.30 (2.97%) $1.71

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