PriceSmart, Inc. (PSMT): A High-Conviction Buy in the Undervalued Global Discount Retail Sector

The global discount retail sector has long been undervalued by investors, overshadowed by the volatility of e-commerce giants and the cyclical nature of luxury retail. Yet, for those who look beyond the noise, PriceSmart, Inc. (NASDAQ: PSMT) emerges as a compelling opportunity. With a 11.4% revenue surge in fiscal 2024, a disciplined expansion strategy in high-growth emerging markets, and a fortress-like balance sheet, PSMT is poised to outperform its peers. This article dissects why PriceSmart deserves a prominent spot in any investor's portfolio.

A Growth Engine Fueled by Discipline and Execution

PriceSmart's Q4 2024 results underscore its operational excellence. Revenue hit $1.23 billion, a 9.6% year-over-year increase, driven by a 6.2% rise in comparable net merchandise sales. While currency tailwinds contributed 0.2% to sales growth, the company's organic momentum is undeniable. Operating income surged to $49.2 million, a 53% jump from the prior year, even after excluding one-time charges like litigation settlements and asset impairments.

The full-year story is equally robust. Net income grew 27.2% to $138.9 million, translating to $4.57 in earnings per share (EPS). Adjusted EBITDA expanded to $303.6 million, reflecting a 10.1% year-over-year increase. These metrics highlight a business that is not only scaling but doing so with margin expansion—a rare feat in retail.

Strategic Expansion: Capturing the Untapped Potential of Latin America

PriceSmart's playbook is simple yet effective: target underpenetrated markets where its U.S.-style warehouse model can disrupt traditional retail. In 2025, the company opened its 56th warehouse in Cartago, Costa Rica, and plans to debut a second in Quetzaltenango, Guatemala, by summer. These openings are not random—they are calculated moves into countries with rising middle-class populations and a cultural shift toward bulk purchasing.

Guatemala and Costa Rica, for instance, have seen per capita GDP growth of 4.2% and 3.8%, respectively, over the past five years. PriceSmart's model thrives in such environments, offering consumers access to low-cost, high-quality goods at scale. The company's 31 Central American warehouses already serve as a blueprint for success, with comparable sales growth outpacing its U.S. peers.

Competitive Advantages: The Unsung Hero of Sustained Growth

PriceSmart's longevity—over 30 years in operation—stems from its structural advantages. First, its disciplined capital allocation. The company maintains a conservative payout ratio of 25-26%, ensuring dividends remain secure while reinvesting in growth. Second, its logistics network is a marvel of efficiency. With distribution centers in Miami, Panama, and Costa Rica, PriceSmart minimizes costs and accelerates delivery times. By 2026, it plans to expand these facilities, including a new hub in Guatemala, to further reduce spoilage and improve inventory turnover.

Digitization is another cornerstone. Nearly one-third of PriceSmart's 62% online-registered members have made purchases digitally, a 19.8% year-over-year increase. The migration to the ReLex platform—a $100 million investment—will streamline inventory management and enhance the customer experience. In an era where omnichannel capabilities define winners, PriceSmart is ahead of the curve.

Risks and Mitigations: A Pragmatic Approach

Emerging markets are not without risks. Currency volatility, political instability, and supply chain disruptions could test PriceSmart's resilience. However, the company has mitigated these through free trade zone operations in the U.S. and Costa Rica, which eliminate tariffs on exports. Additionally, its diversified supplier base and strategic partnerships with local logistics providers reduce exposure to regional shocks.

Investment Thesis: A High-Conviction Buy

PriceSmart's forward-looking guidance for fiscal 2025—$4.98 in EPS and $5.1 billion in revenue—suggests the best is yet to come. At a price-to-earnings ratio of 12x (as of August 2025), PSMT trades at a discount to its historical average of 15x and peers like Costco (COST) and BJ's (BJ). This undervaluation is unjustified given its superior growth trajectory and margin resilience.

For investors seeking exposure to the global discount retail sector, PriceSmart offers a rare combination of scalability, financial discipline, and strategic foresight. Its expansion into Guatemala and Costa Rica, coupled with digital innovation, positions it to capture decades of growth in Latin America—a region projected to grow at 4.5% annually through 2030.

Final Verdict: PriceSmart, Inc. is a high-conviction buy for long-term investors. With a fortress balance sheet, a proven expansion playbook, and a compelling valuation, PSMT is not just surviving in the discount retail sector—it's redefining it.