Why BJ’s Big Club Stock Just Jumped

What happened

Shares of Wholesale Costco competitor BJ’s Wholesale Club Holdings (BJ 7.17%) jumped 7.6% in afternoon trading on Thursday after the company beat analysts’ forecasts for its fiscal second quarter 2022 sales and earnings.

Heading into earnings day, analysts had predicted BJ would earn just $0.80 a share on sales of $4.6 billion. Instead, BJ’s this morning reported adjusted earnings of $1.06 per share – and sales of $5.1 billion.

So what

Total sales were up 22% year-over-year and same-store sales jumped nearly 20% at BJ’s in the second quarter, which ended July 30. But even same-store sales excluding gasoline increased 7.6% year-over-year, and premium revenue increased 11.3%. Obviously, BJ’s did well last quarter.

Profits even performed better than sales. On a non-GAAP (adjusted) basis, BJ’s analyst estimates easily exceeded estimates, but the company’s earnings under generally accepted accounting principles (GAAP) were nearly as good, rising 29% from a year-over-year at $1.03 per share, and rising even faster than sales.

Commenting on the quarter, CEO Bob Eddy noted that BJ’s increased foot traffic in the quarter (as expected given the 11% growth in membership fees). The company has also apparently gained market share, although it’s not yet clear from whom, whether competitors like Costco and Sam’s Club, or just traditional grocery stores.

Now what

The good news doesn’t end there either. Turning from its report of outstanding performance in the second quarter to its forecast for the rest of this year, management predicted that its sales would increase by 4% to 5% for the whole of this year (a little slower than the growth of the second trimester). In terms of earnings, management says earnings could be between $3.50 per share and $3.60 per share, up to 10% better than the company had previously forecast.

That being said, a note of caution is in order here: let’s assume that BJ reaches at least the bottom of this guidance. At about $74.50 share price and $3.50 earnings per share, that would mean BJ’s stock is valued at about 21 times current year earnings, which is not Not bad for a stock that just reported 29% earnings growth. But analysts who follow the stock say these good times won’t last forever. Over the next five years, average earnings growth should be closer to 7% or 8% per year.

Relative to a price/earnings ratio of 21, this means that BJ’s stock is currently valued at a ratio close to 3 PEG. It’s terribly expensive for a retailer – and for a wholesaler too. So my best advice to investors at this point would be to take advantage of today’s profits – and take those profits before everyone realizes how expensive BJ’s stock is getting.

Rich Smith has no position in the stocks mentioned. The Motley Fool fills positions and recommends Costco Wholesale. The Motley Fool has a disclosure policy.