PriceSmart, Inc Returns To A More Reasonable Valuation PriceSmart (NASDAQ: PSMT) proved to be a real pandemic winner over the last two years but share prices got of control, at least in terms of the valuation. Now, after...

Institutional Activity Puts Bottom In PriceSmart

PriceSmart (NASDAQ: PSMT) proved to be a real pandemic winner over the last two years but share prices got of control, at least in terms of the valuation. Now, after a prolonged 8-month sell-off, shares are more reasonably priced at 20X earnings and ready for a reversal. Based on the results, the outlook, and the institutional interest we'd say it looks like this stock is ready to move back up to the post-pandemic highs near $100 which would be quite a gain for investors.

Institutional activity has been robust over the past four quarters if with a noticeable downtrend in volume. Activity peaked in the first quarter of 2021 with net buying worth $69 million and trended lower into the Q1 period where buying continues to outpace selling. The takeaway is that net insider activity is worth about $140 million in 2021 or 6.2% of the current market. That activity brought total ownership to over 76.50% which we think speaks volumes in regards to the company's health and outlook.

PriceSmart, Inc Beats On The Top And Bottom Line

PriceSmart, Inc had a good FQ1 in which revenue topped $975.36 million for a gain of 11.2% over last year. The revenue was driven by strong comps aided by expansion (+3 stores) and record-setting membership levels offset by a small FX-related headwind. On a merchandise basis, gross revenue is up 12.6% across the company's footprint while comps are up 9.4%. Moving down to the margins, the company experienced some margin compression as expected but less than what the market was looking for. The company's operating income rose 3.3% on a YOY basis and drove GAAP EPS of $0.98 or $0.07 better than expected.

Oddly enough, with institutional interest as high as it is, there is only one analyst with a current rating on the stock. The upshot is that the rating came out after the Q1 2022 earnings release and is from UBS Group. UBS Group upped the stock to Outperform from Marketperform but did not set a price target. This is the first analyst's activity since the middle of 2020 when Scotiabank raised its target for the stock to $78 from $60. That target implies about 7.0% of upside for the stock.

PriceSmart Is On Track For Dividend Increases

PriceSmart is neither a high-yielding stock nor one with a robust outlook for dividend growth but is a safe and steady payout that we see getting larger in the not-too-distance future. The company is currently paying out only 20% of a consensus EPS estimate that has proven, in the first quarter at least, to be too low. Add to that a healthy balance sheet and growing cash flows and the stage is set, all that's left is for management to agree with us. Until then, we see no reason why investors shouldn't be able to rely on the payment as is.

The Technical Outlook: PriceSmart, Inc Steadies Above Support

Price action in PriceSmart, Inc hit a low in late December 2021 but appear to be putting in a bottom now. Price action tested and bounced from the $70 level and support is being confirmed by the indicators. The caveat is that price action may be gearing up for another run lower but we don't see that in the cards. In our view, price action is already overextended and ready for a reversal but may face challenges in the form of general market weakness not related to PriceSmart results. Longer-term, we see this stock moving back up to recent highs near $100 as revenue and earnings continue to impress.