TSC Ratings' Updates: Sina

We've downgraded PriceSmart(PSMT Quote), which engages in the ownership and operation of membership shopping warehouse clubs, from buy to hold. Strengths include its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself.

Revenue rose by 26.9% since the same quarter last year, outpacing the industry average of 16.8% growth and boosting EPS significantly in the most recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, it increased its bottom line by earning $1.31 vs. 43 cents in the prior year. PriceSmart's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is very weak and demonstrates a lack of ability to pay short-term obligations.

PriceSmart's gross profit margin of 17.9% is rather low, having decreased from the same quarter the previous year. The net profit margin, however, of 3.90% is above that of the industry average. Shares are down 58.2% on the year, underperforming the S&P 500. The fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.