Institutional activity is located at the bottom in PriceSmart
Price Smart (NASDAQ: PSMT) It has proven to be a true pandemic winner over the past couple of years, but stock prices have taken hold, at least in terms of valuation. Now, after 8 months of prolonged selling, the stock price is more reasonable at 20 times earnings and ready to reverse. Based on the results, expectations, and institutional interest we can say that this stock looks set to return to post-pandemic highs near $100 which would be a huge gain for investors.
Institutional activity has been strong over the past four quarters if there is a noticeable downward trend in volume. Activity peaked in the first quarter of 2021 with a net purchase of $69 million and trended lower in the first quarter period as buying continued to outpace selling. The bottom line is that net internal activity is worth about $140 million in 2021 or 6.2% of the current market. This activity brought the total ownership percentage to over 76.50% which we believe speaks volumes in terms of the company’s health and outlook.
PriceSmart, you beat the top and the bottom line
PriceSmart, Inc. achieved a good 1 good growth rate with revenue exceeding $975.36 million, up 11.2% over last year. Revenue was driven by strong companies backed by expansion (+3 stores) and record membership levels offset by small FX headwinds. On a merchandise basis, total revenue increased 12.6% across company presence while corporate increased 9.4%. Turning to margins, the company experienced some margin pressure as expected but less than what the market was looking for. The company’s operating income rose 3.3% year over year and led to a 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 for the stock. The upshot is that the rating came after the first-quarter earnings announcement of 2022 and is from UBS Group. UBS Group raised the stock to outperform Marketperform but did not set a price target. This is the analyst’s first activity since mid-2020 when Scotiabank raised its target for the stock to $78 from $60. This target indicates about 7.0% of the stock’s upside.
PriceSmart is on the right track for profit increases
PriceSmart isn’t a high-yielding stock that doesn’t have a solid dividend growth outlook, but it does represent a safe and consistent return that we see grow in size in the near future. The company is currently paying only 20% of its agreed EPS estimate which, in the first quarter at least, has proven very low. Add to that a good balance sheet, increased cash flow and the stage is set, all that’s left is for management to agree with us. Until then, we see no reason why investors should not rely on repayment as is.
Technical Outlook: PriceSmart, Inc. Holds Above Support
PriceSmart, Inc’s price action bottomed out in late December 2021 but now appears to be declining. The price action was tested and the bounce from the $70 level is being confirmed by indicators. The caveat is that price action may be preparing for another dip but we don’t see that in the cards. In our view, price action has already been crossed and is ready for a reversal but could face challenges in the form of general market weakness unrelated to PriceSmart results. In the longer term, we see this stock moving higher to recent highs near $100 as revenue and earnings continue to show.