A Good Membership Warehouse Club Operator in Latin American Market

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PriceSmart’s (NASDAQ: PSMT) shareholders must be quite happy as its stock price rose as much as 268% in the past five years, much higher than the S&P 500’s return of only 20.8% during the same period. Recently, the company has also reported that it experienced a 9.8% year-over-year growth for the five-week period ending June 2. Is PriceSmart a good buy after its impressive sales growth results? Let’s find out.

Fast growing business in Latin America

PriceSmart is the similar but smaller version of warehouse clubs, operating membership warehouse clubs in the Latin American and Caribbean markets, offering members high quality merchandise at quite a low cost. PriceSmart currently operates around 31 warehouse clubs in 12 countries and one U.S. territory. In the past two years, PriceSmart has managed to grow its comparable warehouse sales at a very high rate: 14.5% and 18.1% in 2011 and 2012, respectively.

The company announced that its May revenue reached $187.5 million, 14.8% higher than the top line of the same month last year. The comparable warehouse sales grew by as high as 9.8%. For the nine months ended May 31, its net sales rose by 11.4%, from $1.5 billion to $1.67 billion, while the comparable warehouse sales climbed up by 8.9% in the recent thirty-nine week period. What impresses me is the consistent growth in its operating performance in the past five years. Its revenue grew from $1.12 billion in 2008 to more than $2 billion in 2012, while the net income nearly doubled from $38 million to $68 million in the same period.

Moreover, PriceSmart has quite a conservative capital structure. As of Feb. 2013 it had $443 million in equity, $101 million in cash and only around $80 million in both long and short-term debt. It is trading at around $89 per share, with a total market cap of around $2.7 billion. The market values the company at as high as 27.5 times its forward earnings.

Highest sales per square foot but highest valuation

The warehouse club model is quite similar to Costco’s (NASDAQ: COST) business model. While Costco operates mainly in the U.S., PriceSmart is considered as the Costco of Latin America. PriceSmart has outpaced both Costco and Sam’s Club of Wal-Mart (NYSE: WMT). According to Business Insider, while Costco generated around $814 in sales per square foot, the sales per square foot of Sam’s Club was much lower, at around $586. RetailSails has pointed out that PriceSmart made the highest sales per square foot in the Discount & Variety Stores segment. In 2012, it generated more than $1,000 sales per square foot.

Although PriceSmart has been consistently growing, it still affords to pay its shareholders decent dividends. In 2012, it paid out around $0.60 per share in dividends, accounted for only 26.8% of its earnings in 2012. At the current trading price, its dividend yield stays at 0.7%. Costco’s dividend yield is a bit higher. At $110.60 per share, Costco is worth around $48.3 billion on the market. The market values Costco at 21.9 times its forward earnings. Costco’s dividend yield is 1.1%. Wal-Mart is trading at $76.40 per share, with the total market cap of around $252 billion. The market values Wal-Mart the cheapest among the three, at only 13.2 times its forward earnings. Income investors might prefer Wal-Mart with its dividend yield at 2.5%.

A better buy than Costco and Wal-Mart?

Charlie Munger has been in love with Costco, and he has said that Costco would be the place that we and our families would go for the rest of our lives. Going forward, all of those companies would deliver decent returns for their shareholders in a long run, as they all have leading positions in the markets they serve and deliver nice operating performance. Personally, PriceSmart would benefit a lot from the growing Latin American market. It could also be a good acquisition target for either Wal-Mart or Costco to expand their footprints in Latin America.

Costco's low prices haven't just benefited customers -- shareholders have walloped the market, returning 11,000% over the past two decades. However, with prices near all-time highs, is the ride over for Costco investors? To answer that and more, The Motley Fool's compiled a premium research report with in-depth analysis on Costco. Simply click here now to gain instant access to this valuable investor's resource.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale and PriceSmart. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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