Why PriceSmart's Chile Expansion and Digital Surge Make It an Undervalued Gem

PriceSmart (NASDAQ: PSMT) is positioning itself as a retail disruptor in emerging markets, with its strategic expansion into Chile and accelerating digital sales forming the backbone of its growth narrative. Despite a modest EPS miss in Q3 2025, the company's robust financial health, fair valuation, and long-term catalysts suggest investors should look past short-term volatility. Let's dissect how Chile's market potential, operational efficiencies, and digital momentum position PSMT as a compelling buy.

Chile: A Strategic Market with Untapped Potential

PriceSmart's evaluation of Chile represents a bold step into a market with a strong middle class (accounting for ~45% of the population) and favorable trade ties with the U.S. Through free trade agreements, the company could reduce tariffs and streamline logistics—a critical edge in a region where distribution costs often hinder profitability.

The company has already begun on-the-ground assessments, with CEO David Price leading site visits to identify prime locations. While no timeline is confirmed, the ongoing due diligence and leadership commitment signal this is a priority. Chile's low warehouse club penetration (compared to Mexico or Colombia) suggests significant upside for PriceSmart's membership model, which thrives in price-sensitive, family-centric markets.

Digital Growth: A Catalyst for Margin Expansion

PriceSmart's digital sales surged 19.8% year-over-year in Q3 2025, driven by improved online infrastructure and the migration to the ReLex platform—a move expected to cut costs and enhance inventory management. This growth isn't just top-line; it also reduces reliance on physical store foot traffic, a key advantage in markets with high labor and real estate costs.

The company's ability to blend offline convenience with digital innovation mirrors the success of warehouse clubs like Costco, but at a fraction of the valuation.

Valuation: Undervalued Relative to Peers

PriceSmart's P/E ratio of 21.64 is nearly half that of Walmart (40.98) and a third of Costco's (55.48), despite comparable growth metrics. Its P/B ratio of 2.67 further underscores undervaluation, as it reflects a market willing to pay a premium for tangible equity. Meanwhile, its dividend yield of 1.17%—sustained by a 26.5% payout ratio—is both stable and scalable, contrasting sharply with peers like Target (10.45% yield but weaker growth).

The stock's 6.04% post-earnings rally highlights investor confidence in its fundamentals, even after the minor EPS miss. A historical backtest from 2022 to 2025 reveals that following earnings miss expectations, PSMT showed a consistent 33.33% win rate over 3, 10, and 30-day periods, with a maximum return of 6.87% on day 47. This aligns with the recent performance, reinforcing the stock's resilience to temporary headwinds.

Operational Efficiencies: The Quiet Strength

PriceSmart's focus on logistical upgrades—like new distribution centers in Panama, Guatemala, and Trinidad—reduces costs and supports future expansions. These investments also position the company to handle Chilean operations seamlessly, minimizing startup risks. Additionally, its currency hedging strategies (e.g., multi-currency loans in Trinidad) mitigate FX volatility, a common pitfall in emerging markets.

Risks and Considerations

• Regulatory Delays: Chilean permits could take longer than expected, delaying revenue contributions.
• Market Saturation: Overexpansion in existing regions like Guatemala could strain margins.
• Trade Headwinds: Tariff renegotiations in key markets may impact cost structures.

However, these risks are mitigated by PriceSmart's disciplined approach to expansion and its $262M cash reserves, which provide a safety net.

Investment Thesis: Buy for Long-Term Upside

PriceSmart is a rare blend of valuation appeal and growth catalysts. Chile's entry, if successful, could add 20–30% to its current 55-club footprint, while digital sales and cost efficiencies drive margin expansion. At current levels, the stock trades at a 14.52% annual EPS growth multiple, making it undervalued relative to its peers.

Action Items:
- Buy PSMT for a 12–18 month horizon, targeting a 25–30% return as Chile's entry materializes and digital sales scale.
- Hold for dividend income, with a consistent payout history and room for increases post-share buybacks.
- Avoid if you prioritize short-term EPS stability; focus instead on its long-term trajectory.

In a retail sector dominated by overvalued giants, PriceSmart offers a rare mix of fair valuation, geographic diversification, and operational rigor. Investors who bet on its Chile pivot and digital evolution stand to reap rewards as the company solidifies its position as a regional retail powerhouse.

Data as of July 14, 2025. Past performance does not guarantee future results.