Diversification is a key tool for dealing with stock price volatility. But the goal is to pick stocks that do better than average. PriceSmart, Inc. (NASDAQ:PSMT) has done well over the last year, with the stock price up 45% beating the market return of 39% (not including dividends). Having said that, the longer term returns aren't so impressive, with stock gaining just 12% in three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
PriceSmart was able to grow EPS by 10% in the last twelve months. The share price gain of 45% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that PriceSmart has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
A Different Perspective
It's good to see that PriceSmart has rewarded shareholders with a total shareholder return of 46% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for PriceSmart that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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