Let the financial gurus argue over whether we’re headed into an official recession or not. But, either way, groceries are EXPENSIVE, and the consumer is back to credit card debt levels not seen since before the pandemic. This means grocery stores that provide value, like Pricesmart (PSMT), Walmart (WMT), and Natural Grocers by Vitamin Cottage (NGVC) will continue to win business.
Maybe you’ve heard of Pricesmart (PSMT) which used to be part of Costco (COST), (you may know Pricesmart by its original name, Price Club) maybe not. It’s not a common name in the U.S. anymore, as PSMT operates in Central America, the Caribbean, and Colombia. It actually has over 50 warehouse membership stores across these regions.
These warehouse stores still look similar to your local Costco, and offer similar bulk merchandise and private label products. They also have similar wellness offerings that include glasses and optical care, a pharmacy, and audiology or hearing aid products. And, like Costco, Pricesmart collects membership fees, with a retention rate averaging close to 90%, and a five year CAGR of around 5%...just in the membership fees.
In our POWR Ratings, Pricesmart is the number 9 grocery or big box retailer, and has an overall rating of B. The company ranks most highly for stability, where it is more highly rated than 94% of U.S. listed stocks, and for Sentiment, where it outperforms almost 87% of stocks in our database.
Pricesmart has a PE of 20 (compared to Walmart, which we’ll talk about in a minute, with a PE of over 31), a price to sales ratio of less than .5, and a return on equity (ROE) of 10.84%. In its latest quarter, merchandise sales increased 7.1% YoY.
Another positive for Pricesmart is that unlike in the U.S., where competition is fierce, in the majority of their operating areas they are the only membership warehouse. They are also growing, adding additional warehouses at a robust, but I believe measured pace.
The company’s stock has been doing very well this year, moving from $60 to over $80, but with a recent pull back to the mid-$70s. As I said above, still cheaper than Walmart, and with arguably more growth potential.
And, speaking of Mr. Walton himself (not the one with John Boy as a son), our second value play in the grocery (and everything else) area, is Walmart (WMT). Not surprisingly Walmart has an A rating in the POWR Ratings, and is number three in the overall grocery and big box retailer category.
As I said above, Walmart is a little more “expensive” on certain financial metrics, but that’s because the company itself is simply a powerhouse. As of its latest quarter, net sales were just over $110 billion, a 5.4% increase YoY. And, they expect net sales to increase another 3% or so in the current quarter.
Walmart is hitting on all cylinders. Referencing in particular the grocery theme, Doug McMillon, Walmarts President and CEO, said in their recent earnings release “Food is a strength…” and our customers are shopping across all of our channels with “eCommerce up 24% globally.”
It’s no wonder Walmart ranks above 99.21% of all other U.S. stocks in our overall POWR Ratings, with Stability and Sentiment both in the 96-98% range. With interest rates staying high, gas prices reigniting, and inflation staying persistently sticky (even if lower) there’s no reason Walmart, which many turn to as a place for value pricing, should not continue to rank very highly.
The stock price has also reflected the fact that business is good at Walmart, rising in 2023 from a low of $136 in March to its current breakout price in the mid $160s. The stock just recently cleared 2022 highs of $160.77.
And speaking of highly rated grocery stocks, let’s take a brief look at the POWR Ratings number 1 stock in the grocery and big box retailer category…Natural Grocers by Vitamin Cottage (NGVC).
Not only does the stock sit atop the grocery rankings with an overall A Rating, but ranks an A in Growth, Stability, and Sentiment, and a B in Quality.
NGVC currently has a PE of just under 16, and actually has a dividend yield close to 3%. The company has built its reputation on 100% organic produce, and strict “natural” product standards around products you put either in or on your body.
At the same time, and important to the economic times may be getting a tad tougher theme, is what NGVC Co-President Kemper Isely calls their “...high product quality standards [and] marketing emphasis on value and Always Affordable…” As long as they can afford it, consumers will spend more on healthy products…and it doesn’t hurt to be a value provider in the healthy product market.
Like the other stocks I’ve talked about, NGVC has had a nice run this year, moving from $9 to around $13.50. But, the stock is still nowhere near where it topped out in 2022 at just over $24.
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PSMT shares were trading at $76.78 per share on Tuesday afternoon, up $1.06 (+1.40%). Year-to-date, PSMT has gained 27.89%, versus a 17.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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