PriceSmart Emerges as a Strategic Play for 2024 with Numerous Favorable Factors

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PriceSmart, an investment opportunity that has faced challenges in gaining traction with price shares, appears to be overcoming its struggles, especially as it positions itself for success in 2024. The company’s focus on emerging markets (EMs) in Latin America, coupled with organic growth, an expanding store count, and membership growth, signifies a strategic move that could yield significant returns for shareholders.

The recent Q1 results indicate a robust performance, with a reported revenue of $1.17 billion, showcasing an 11.4% increase compared to the previous year. This outperformance is notable when contrasted with larger, U.S.-centric competitors like Walmart and Costco, which are expected to grow at a slower rate in the comparable quarter. Net merchandise sales saw a 10.7% increase, driven by a 6% rise in store count, a 6.8% FX tailwind, 4.3% organic comp sales growth, and an 11% surge in membership.

The combination of various growth levers contributed to a significant margin improvement, with GAAP and adjusted earnings growing by 15%, outpacing the top-line growth by 360 basis points. The earnings beat expectations by $0.12, and this strength is anticipated to continue into the 2nd quarter.

Looking forward, PriceSmart is poised for strength in 2024, with the expectation of accelerating growth in Latin America and the Caribbean. The company’s momentum in store count, membership, and comp sales is not fully reflected in the quarterly results, and analysts may be underestimating its potential with a forecast of 10% top-line growth in 2024.

PriceSmart stands out as a value and yield proposition among membership clubs for investors. Trading at a lower earnings multiple compared to competitors like Walmart and Costco, the stock offers an attractive opportunity for market-leading growth. Despite a slightly lower dividend yield, the 1.25% payout ratio is well-covered by cash flow, and the company’s balance sheet, while carrying some debt, is net cash with low leverage.

Institutional support and analyst recommendations add further credibility to PriceSmart’s positive outlook. With institutions owning about 82% of the stock and recent buying activity, the technical outlook is favorable. The 10% premarket surge indicates solid support at key moving averages, and if the resistance near $82 is breached, a sustained rally could be on the horizon, potentially reaching the $90 region by mid-year. Overall, PriceSmart appears to be on a trajectory for success in 2024 and beyond.