After reading PriceSmart, Inc.’s (NASDAQ:PSMT) most recent earnings announcement (31 August 2018), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
Was PSMT’s recent earnings decline worse than the long-term trend and the industry?
PSMT’s trailing twelve-month earnings (from 31 August 2018) of US$73m has declined by -18% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -1.8%, indicating the rate at which PSMT is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and whether the whole industry is experiencing the hit as well.
In terms of returns from investment, PriceSmart has fallen short of achieving a 20% return on equity (ROE), recording 9.8% instead. Furthermore, its return on assets (ROA) of 6.3% is below the US Consumer Retailing industry of 7.3%, indicating PriceSmart’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for PriceSmart’s debt level, has declined over the past 3 years from 23% to 15%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. In some cases, companies that endure an extended period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry disruption and growth. I recommend you continue to research PriceSmart to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PSMT’s future growth? Take a look at our free research report of analyst consensus for PSMT’s outlook.
- Financial Health: Are PSMT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 August 2018. This may not be consistent with full year annual report figures.
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.