Investors just received plenty of positive news about BJ's Wholesale Club's (BJ -1.22%) business. The company reported generally positive news around sales growth and market share in its Q1 earnings report, which covered the selling period through late April. Cost pressures are easing, potentially paving the way for faster earnings growth ahead.

Yet the stock fell in the immediate wake of the late-May report. BJ's shares are trailing the wider market so far in 2023 and have underperformed rival Costco Wholesale (COST -0.63%), as well. Does this drop represent an opportunity for investors to bulk up on this high-performing retailer?

Winning market share

BJ's executives said customer traffic was strong in Q1, translating into continued market-share gains. Investors have some hard data to back up those claims, too.

Comparable-store sales were up 6% in the period, beating the 5% boost that Costco reported in the U.S. market. BJ's also outpaced Target but didn't expand quite as quickly as Walmart's Sam's Club in an environment where shoppers were increasingly looking for deals.

Still, it's good news that BJ's could land higher customer traffic at stores, along with a 19% boost in e-commerce sales, even as consumers pulled back spending in many discretionary niches. "We drove top-line growth bolstered by robust traffic and share gains," CEO Bob Eddy said in a press release.

Making money

Like Costco, BJ's aims for price leadership as a core foundation of its growth strategy. Yet the retailer still generates strong profits, despite a low profit margin.

Operating income was $187 million, or 4% of sales, compared to $150 million, or 3.4% of sales, a year ago. Growing membership fee income helped BJ's push its core profit level above Costco's and other retailing peers.

BJ Operating Margin (TTM) Chart

BJ Operating Margin (TTM) data by YCharts.

There's better news on the way here, too. Management said it's seeing moderating inflation and reduced supply chain pressures. As a result, the Q1 earnings record that the company just set is likely to be followed by many more records in the years ahead.

The price is right

BJ's stock is priced at a significant discount, compared to bigger players in the industry. Costco stock trades for 0.9 times sales, and Walmart is available at a price-to-sales ratio of 0.65. Following the recent drop, BJ's stock is priced at less than 0.5 times sales.

That cheap valuation makes sense only if your focus is on the short term, which might include volatile growth and earnings trends for this regional retailer in the event of a recession. Patient investors can look past those temporary risks, though. This consumer staples business is winning market share, boosting profitability, and growing its store base.

These wins should help support excellent returns for investors over the long term, especially since shares have underperformed major indexes so far in 2023. If you're prepared to endure volatility associated with owning a relatively small retailer, then take a closer look at BJ's stock. It's an attractive buy right now.