BJ's Wholesale Club Holdings (BJ 0.92%) recently announced a strong finish to fiscal 2021, which ended Jan. 29. It was the most profitable year in the company's history, which speaks volumes about BJ's ability to deliver value to consumers in an inflationary environment. Comparable club sales increased 9% year over year, with earnings per share improving by 13%.
The stock's recent price decline doesn't seem to reflect that BJ's is seeing momentum in attracting and retaining high-quality members to its club stores. The company offers long-term growth and its stock is now trading at a discount to the market average price-to-earnings ratio. The company might just be one of the best defensive stocks to buy in 2022.
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BJ's memberships are growing
Costco Wholesale is the leader of the membership-based warehouse concept, with 63.4 million total households paying fees for the privilege of shopping at one of its stores. But BJ's is seeing strong gains, too.
Over the last five years, memberships at BJ's have increased every year. BJ's has made significant improvements to attract loyal members in recent years, including the launch of its co-branded Mastercard several years ago. BJ's has grown to about 1.4 million cardholders. Investments in expanding private brand merchandise and growing the online business are a few things helping the company attract and retain more members.
One important sign of growing demand is membership fee income per member, which increased 5% over last year. It takes a strong business to grow the membership base, while also increasing the amount that members spend for their membership.
"The improvements in the size and quality of our membership base is evidence of the value we offer to our members," CEO Bob Eddy said during the fiscal fourth-quarter earnings call.
Another good sign is the renewal rate, which is trending up toward Costco's level. When Eddy joined the company 15 years ago, BJ's membership renewal rate had never exceeded 84%. In the last quarter, it reached a new high of 89%, and management believes it can eventually hit 90%, which would narrow the gap with Costco's 92% renewal rate in the U.S. and Canada.
The ideal value stock
The ability to post record profitability and membership renewal rates in this challenging retail environment makes BJ's Wholesale a top defensive stock to buy in 2022. When considering the stock's relatively inexpensive valuation, it makes the opportunity that much sweeter.
BJ PE Ratio data by YCharts
Despite climbing 137% over the last three years, BJ's share price currently trades at a price-to-earnings (P/E) ratio of 19.3, which is a discount to the S&P 500's average P/E of 24. It's also more attractive than Costco's expensive-looking P/E of 42.
The prospects for BJ's compounding returns over the long term from opening new clubs and growing its membership base provide investors a good chance of crushing the market-average return.
