Source: PriceSmart. 

The cultural DNA that makes Costco such a dominant player in the United States can be found in every aspect of its Latin American counterpart, PriceSmart . Costco once owned PriceSmart, where co-founder Sol Price's philosophy of passing along great deals to customers while providing a top-rate work environment is the spitting image of what Costco co-founder Jim Sinegal accomplished at his company.


That's why, back in June 2011, I put a significant portion of my retirement savings into purchasing PriceSmart shares. As you'll see below, it's been a great investment that I have no intention of selling -- but at this point, it appears to be too pricey to encourage fellow Fools to buy additional shares.

A quality operation
One of the things I love best about PriceSmart is that management refuses to rush expansion plans. Currently, the company has only 31 warehouse stores largely spread across tiny Caribbean and Latin American countries. Instead of going on a building blitz throughout South America -- where investors see the most potential for growth -- PriceSmart has elected to follow a slow, steady, and methodical approach.

The company moved into Colombia two years ago, its first foray into a continent that is ripe for membership/club-type warehouses. Wal-Mart has a strong presence in Brazil, but not outside of that single country. That leaves a large population and a number of growing economies up for grabs.

Since the opening of the first warehouse store in Barranquilla, Colombia, PriceSmart has added two locations in Cali. All three appear to be performing exceptionally well.

One look at the company's growth in both membership and revenue shows why my initial investment in PriceSmart is up 140%.

Source: SEC filings.

Source: SEC filings.

An expensive stock
Because this is a quality company with experienced management carrying out a solid business plan, I do not intend to sell my shares at any point in the near future. At the same time, however, it would be a mistake to tell other Fools that this is a "screaming buy" at these prices.

Take a look at the difference between how PriceSmart was valued when I bought shares and where it is today.

Metric 

June 2011

November 2013

Difference

P/E

 26

 43

 +65%

P/FCF

 43

 60

 +40%

Source: SEC filings, Yahoo! Finance.

What does this tell us? For starters, improved optimism has accounted for a large part of the stock's increase. It's not that the company doesn't deserve that optimism; it most certainly does. But whether it deserves this level of optimism is another question.

Over the past month, PriceSmart shares are up more than 20%. Though the company is showing impressive same-store sales growth, this is nothing new. The biggest reason for the bump in optimism likely comes from the fact that management talked about testing the market in Bogota, Colombia, with an online delivery system and tentative plans to build a warehouse in the country's capital.

While that's certainly exciting, I think investors would simply be better served by looking elsewhere until PriceSmart enters a more attractive buying range.

Will Wal-Mart even be around to challenge PriceSmart?
Wal-Mart is arguably one of the greatest companies of our time, but is its business model getting outdated? To learn about two retailers with better prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

The article This Latin American Play Is Getting Pricey originally appeared on Fool.com.

Fool contributor Brian Stoffel owns shares of PriceSmart. The Motley Fool recommends Costco Wholesale and PriceSmart. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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