Shares of warehouse retailer PriceSmart (PSMT 0.05%) -- Latin America's answer to Costco (COST +0.31%) -- surged by nearly 15% in early trading on the Nasdaq Wednesday before retracing a bit. But as of 11:30 a.m. ET, the stock was still holding onto a 6.4% gain.
Heading into its fiscal 2024 first-quarter report, analysts had forecast that PriceSmart would earn $1.09 per share, a bit less than the $1.12 per share it had earned in the prior-year period. Instead, PriceSmart reported a profit of $1.24 per share on sales of $1.17 billion.
NASDAQ: PSMT
Key Data Points
PriceSmart Q1 sales and earnings
Those $1.17 billion in sales amounted to better than a 10% year-over-year lift, although 4 percentage points of the gain came from currency exchange rate fluctuations. Also helping PriceSmart's results was the addition of three new warehouse clubs.
Wherever the revenues came from, however, they resulted in supercharged earnings growth. Profits rose 15.5% year over year -- a much better result than the profit decline that Wall Street had anticipated. As a matter of fact, despite operating in entirely different markets (PriceSmart's warehouse clubs are located in Latin America and the Caribbean), PriceSmart's earnings growth last quarter was basically on par with that of the company it imitates, Costco, which reported earnings growth of 16.5% last quarter.
Is PriceSmart stock a buy?
But here's a key difference between Costco and PriceSmart: In terms of its valuation, PriceSmart stock is a whole lot cheaper than Costco.
PriceSmart trades at about 21 times earnings, less than half of Costco's P/E ratio of 45.5. What's more, while Costco (barely) beat PriceSmart's growth rate last quarter, over the next five years, analysts polled by S&P Global Market Intelligence predict that the smaller company will outgrow its larger U.S. analog -- delivering 11% per year annualized earnings growth compared to Costco's 8%.
When you consider further that PriceSmart's dividend yield of 1.3% is twice the yield of Costco, this isn't even a hard choice to make. PriceSmart stock is clearly the smarter stock to buy.
