PriceSmart (NASDAQ:PSMT) stock performs better than its underlying earnings growth over last five years

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the PriceSmart, Inc. (NASDAQ:PSMT) share price is up 35% in the last five years, that's less than the market return. On a brighter note, more newer shareholders are probably rather content with the 23% share price gain over twelve months.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for PriceSmart

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, PriceSmart achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is higher than the 6% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into PriceSmart's key metrics by checking this interactive graph of PriceSmart's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for PriceSmart the TSR over the last 5 years was 45%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

PriceSmart shareholders gained a total return of 26% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 8% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. To that end, you should be aware of the 1 warning sign we've spotted with PriceSmart .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.