PriceSmart, Inc. (NASDAQ:PSMT), which is in the consumer retailing business, and is based in United States, saw significant share price movement during recent months on the NasdaqGS, rising to highs of $87.65 and falling to the lows of $56.09. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether PriceSmart’s current trading price of $56.09 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at PriceSmart’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is PriceSmart still cheap?According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 23x is currently well-above the industry average of 12.02x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since PriceSmart’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of PriceSmart look like?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. PriceSmart’s earnings over the next few years are expected to increase by 44%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in PSMT’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe PSMT should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on PSMT for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for PSMT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on PriceSmart. You can find everything you need to know about PriceSmart in the latest infographic research report. If you are no longer interested in PriceSmart, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.