PriceSmart, Inc. (NASDAQ:PSMT), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$93.78 and falling to the lows of US$83.62. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether PriceSmart's current trading price of US$88.20 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at PriceSmart’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for PriceSmart

What is PriceSmart worth?

PriceSmart is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that PriceSmart’s ratio of 27.51x is above its peer average of 15.79x, which suggests the stock is trading at a higher price compared to the Consumer Retailing industry. In addition to this, it seems like PriceSmart’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will PriceSmart generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. PriceSmart's earnings over the next few years are expected to increase by 22%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? PSMT’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe PSMT should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PSMT for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for PSMT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

It can be quite valuable to consider what analysts expect for PriceSmart from their most recent forecasts. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in PriceSmart, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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