Time To Look At The Latin American Costco?

PriceSmart Inc. PSMT shares are trading at a new 52 week high, as the company has continued to expand its presence into new countries in Latin America. PriceSmart, which is similar to Costco COST, BJ's Wholesale BJ and Sam's Club, is a membership-based retail chain, and shares are trading at 23 times forward earnings, slightly more than its competitors. The company was mentioned positively in Barron's in May, and since then, shares have risen more than 20% since the article. Momentum appears to be behind this name, as it has made a new 52 week high every day recently, and it looks like volume is starting to increase as well. The company, which is based in San Diego, has become the Caribbean's largest operator of membership-based retail stores, and could potentially be worth $80 per share over the next few years, according to David Hodgson, a portfolio manager with Toronto-based Gluskin-Sheff. The company pays a tiny dividend, yielding 1.1% at these levels, but the company is focusing on growth, and its earnings are showing that. PriceSmart has grown its earnings 31% year-over-year, and revenues are growing at 23% year-over-year. Earnings for the latest quarter are expected to be 46 cents per share on $390.60 million in revenues. Guidance for the next quarter is expected to be 45 cents per share on $404 million in revenues. For a company trading at 23 times forward earnings, this is not horribly expensive, and could indicate that traders are willing to pay even more for the name, as it continues to expand in countries such as Colombia, and ultimately all of Latin America. ACTION ITEMS:

Bullish:
Traders who believe that PriceSmart is likely to continue to shine might want to consider the following trades:

• Going long Costco, the king of the retail warehouses could be profitable as a rising tide lifts all boats.

• BJ's Warehouse was just bought out for 16 times forward earnings, suggesting that Leonard Green got a steal. There has been some speculation that Wal-Mart (NYSE WMT) may eventually spin off Sam's Club, so investors may want to look at this name as well.

Bearish:
Traders who believe PriceSmart is petering out here may consider an alternate positions:

• Going short the Retail HOLDRs ETF RTH could prove profitable, especially if commodity costs continue to creep higher, especially oil prices.

• Traders can also go short PriceSmart itself, if they believe that the company's 2.1 price to earnings growth ratio is too high a price to pay for the name, or the company does not grow as fast as expected.

• Traders can also go short Costco, as the name is trading at 21 times forward earnings, a little higher than its historical average.

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