At the current price of $81, what are market expectations regarding PriceSmart’s future operating performance? Over the next 6 years, PriceSmart shares will need to reach $136 to achieve average annual stock market performance of 9.0%. Upper quartile performance will require a $160 PriceSmart stock price by 2029.
Executive Summary
- PriceSmart’s important characteristics: high stability, below average expected growth, low profitability, and below average financial strength.
- High valuation, below market shareholder returns. Current valuation levels are high 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 9.3% per year total shareholder return. A 2029 stock price of $136 would reflect median performance and a price of $160 would be required to reach upper quartile performance.
- Historical growth has been below 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.
- PriceSmart’s risk profile is unfavorable. 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 very low. The debt/capital ratio has declined.
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