Stock Analysis

Should You Be Adding PriceSmart (NASDAQ:PSMT) To Your Watchlist Today?

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NasdaqGS:PSMT
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Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like PriceSmart (NASDAQ:PSMT), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for PriceSmart

How Quickly Is PriceSmart Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That makes EPS growth an attractive quality for any company. Over the last three years, PriceSmart has grown EPS by 10% per year. That's a pretty good rate, if the company can sustain it.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note PriceSmart achieved similar EBIT margins to last year, revenue grew by a solid 12% to US$4.1b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:PSMT Earnings and Revenue History January 25th 2023

Fortunately, we've got access to analyst forecasts of PriceSmart's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are PriceSmart Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own PriceSmart shares worth a considerable sum. We note that their impressive stake in the company is worth US$155m. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

Does PriceSmart Deserve A Spot On Your Watchlist?

As previously touched on, PriceSmart is a growing business, which is encouraging. If that's not enough on its own, there is also the rather notable levels of insider ownership. These two factors are a huge highlight for the company which should be a strong contender your watchlists. Still, you should learn about the 1 warning sign we've spotted with PriceSmart.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

What are the risks and opportunities for PriceSmart?

PriceSmart, Inc. owns and operates U.S. style membership shopping warehouse clubs in the United States, Central America, the Caribbean, and Colombia.

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Rewards

  • Trading at 14.4% below our estimate of its fair value

  • Earnings are forecast to grow 13.04% per year

  • Earnings have grown 8.1% per year over the past 5 years

Risks

  • Significant insider selling over the past 3 months

View all Risks and Rewards

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