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PriceSmart, Inc. (PSMT), Costco Wholesale Corporation (COST): A Good Membership Warehouse Club Operator in Latin American Market

PriceSmart, Inc. (NASDAQ:PSMT)’s 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, Inc. (NASDAQ:PSMT) a good buy after its impressive sales growth results? Let’s find out.

PriceSmart, Inc. (NASDAQ:PSMT)

Fast growing business in Latin America

PriceSmart, Inc. (NASDAQ:PSMT) 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, Inc. (NASDAQ:PSMT) currently operates around 31 warehouse clubs in 12 countries and one U.S. territory. In the past two years, PriceSmart, Inc. (NASDAQ:PSMT) 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, Inc. (NASDAQ:PSMT) 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 Wholesale Corporation (NASDAQ:COST)’s business model. While Costco Wholesale Corporation (NASDAQ:COST) perates mainly in the U.S., PriceSmart is considered as the Costco Wholesale Corporation (NASDAQ:COST) of Latin America. PriceSmart has outpaced both Costco Wholesale Corporation (NASDAQ:COST) and Sam’s Club of Wal-Mart Stores, Inc. (NYSE:WMT). According to Business Insider, while Costco Wholesale Corporation (NASDAQ:COST) 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.