BJ’s Wholesale Club’s (NYSE: BJ) stock price has struggled for the last year or so because of softer-than-expected margins and profitability concerns. The caveat is that BJ’s has also been building its membership base, and the strategy is paying off. Q2 results reflect the strength of its position, with results topping industry peers by a wide margin. This includes a healthy profit margin, despite cash-flow concerns, enabling a robust capital return, which is the other reason to buy this stock.
BJ's builds leverage on a quarterly basis by growing its footprint, expanding its customer base, and aggressively reducing its share count. Trading around $90, the stock offers a deep discount to its highs and true value for investors. The approximately 19x current-year earnings guidance is not only a discount relative to peers, which trade in the 32x range for PriceSmart (NASDAQ: PSMT), about 35x earnings for Walmart (NASDAQ: WMT), and 47x for Costco (NASDAQ: COST), but it also fails to price in the growth outlook. This stock trades at pennies on the dollar relative to its longer-term forecasts, setting the stage for its stock price to rise by several hundred basis points over time.
