SPS Commerce, Inc. (SPSC, $150.19): “Success with Supply Chain”
By: Richard
Zaro, AIM Student at Marquette University
Summary
• SPS Commerce, Inc. (NASDAQ: SPSC) provides cloud-based supply chain
management services. The firm serves retailers, grocers, distributors, suppliers,
and logistics firms to orchestrate the management of item data, inventory
control, order fulfillment, and sales analytics across all channels.
• On October 28th, SPSC
announced a new program to repurchase up to $50 million of common stock.
•Demand for supply chain management
solutions continues to increase as the world experiences supply chain
shortages. Additionally, the global market is estimated to be worth $37 billion
by 2027, a 133.44% growth from the market size of $15.85 billion in 2019.
•Management intends to pursue acquisitions
that will allow SPS Commerce to expand into new regions and allow them to offer
new functionalities as well as add customers.
• Since Being added to the AIM portfolio,
SPSC has returned 40.65%.
Key
points
SPS Commerce, Inc. has shown
exceptional growth over the past year. Revenue growing over 22% to $97.9 Million
year over year. With an increasing market presence and growth of the companies it
serves, SPSC should see continued revenue growth and continued demand for its
supply chain management software.
Management indicates that it
plans to continue to grow SPS Commerce by further penetrating the supply chain management
market. It intends to selectively pursue acquisitions that will add customers
and allow SPS Commerce to expand into new regions or allow them to offer new
functionalities.
SPS Commerce, Inc. expects to
have fourth quarter revenue be in the range of $99.9 million to $100.5 million,
an approximate 2% growth for the quarter. This smaller growth rate has contributed
to the recent drop in share price. Although the fourth quarter estimate is low,
the year-to-year growth rate is estimated to be 22% to 23%.
SPS Commerce, Inc. also announced
on October 28th that its board of directors authorized a new program
to repurchase up to $50 million of common stock. The purchases may be privately
negotiated purchases, purchases on the public market, or both. The timing and
number of shares repurchased will be subject to business and market conditions
and other investment considerations.
SPSC has been able to capitalize
on the increasing need for supply chain management solutions. Holding nearly 5%
of a market expected to grow by about 133.44% by 2027 is extremely promising. With
supply chain shortages in the news, companies like SPS Commerce can show their
importance. SPS Commerce has established a presence and will continue to grow
with the companies that it serves.
What
has the stock done lately?
Over the past month, SPSC has dropped
about 6.92% while the S&P 500 has returned about 7.01%. The stock’s value
has ranged from $143.40 to $174.42. The stock price saw a sharp decline on 10/29
after its earnings were announced. The current price is hovering around $150.00
which is about ~16% off its 52 week high.
Past
Year Performance: SPSC has increased 67.97% in value over the past
year, trading at about $86 in November 2020 and currently trading around $150.
In the past year, the stock had performed well and has remained healthy excluding
the recent drop in its stock price after its Q3 earnings report.
My
Takeaway
Since being added to the AIM fund,
SPSC has exceeded its price target of $83.69. The increased demand for supply
chain management software, the growth of the companies that SPSC serves, and an
overall need for solutions amidst the current supply chain shortages all benefit
SPSC’s business. Management placing an emphasis on growing the company by
penetrating the market through strategic acquisitions in addition to share repurchase
plans show that SPSC is a strong investment, and its management is confident in
its success. It is recommended that the AIM fund continues to hold their SPSC
position.
Source: FactSet
