Thursday, December 9, 2021

A Small Cap Equity holding: SPS Commerce, Inc. (SPSC, $150.19): “Success with Supply Chain” By: Richard Zaro, AIM Student at Marquette University

 SPS Commerce, Inc. (SPSC, $150.19): “Success with Supply Chain”

By: Richard Zaro, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


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.

Source: FactSet

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