PriceSmart’s common shares will need to reach $138 to achieve average annual stock market performance of 9.0% over the next 6 years. PriceSmart’s stock price will need to reach $163 by 2029 to achieve upper quartile performance. At the current price of $82, what is the market’s view of PriceSmart’s future operating performance?
Executive Summary
- Price Target Research identifies PriceSmart as having: stability, below average expected growth, low profitability, and low financial strength. A big positive influence on PriceSmart’s valuation is its superior Risk Profile.
- Average valuation, below market shareholder returns. Current valuation levels are average relative to the PriceSmart Peer Group. Recent market returns have underperformed the PriceSmart Peer Group. Total shareholder returns expected to equal the overall equity market. Based on current investor expectations, PriceSmart shares should reach a level of $127 by 2029 — an 8.9% per year total shareholder return. A 2029 stock price of $138 would reflect median performance and a price of $163 would be required to reach upper quartile performance.
- Historical growth has been average relative to the PriceSmart Peer Group and forecasted growth is relatively average. PriceSmart’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. PriceSmart’s consensus growth expectations are in line with past growth.
- Asset Turnover is group leading. This factor has strengthened market perceptions of PriceSmart. The company has below average cash and will have to work to generate attractive investment opportunities and improve valuation.
- Risk Profile has been PriceSmart’s biggest valuation strength. PriceSmart’s risk profile is very favorable. Overall variability has been very low with very low revenue variability, relatively low E.P.S. variability, and relatively low stock price volatility. Financial Strength is below average and earnings’ expectations are relatively high. The debt/capital ratio has declined.
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