On Monday, Piper Sandler initiated coverage on SPS Commerce (NASDAQ:SPSC), a provider of Electronic Data Interchange (EDI) software, with a Neutral rating and a price target of $198. The firm's analysis highlights the company's position in a growing EDI market, noting several factors that contribute to the sector's expansion.
These include increasing mandates from retailers for suppliers to adopt EDI, the constant renewal of third-party sellers in both e-commerce and physical retail spaces, and the opportunities presented by Enterprise Resource Planning (ERP) migrations to cloud-based solutions.
SPS Commerce stands out in the EDI market, which has undergone significant consolidation, as it boasts the broadest network of retail-specific trading partners. This extensive network positions SPS as a leading choice for businesses seeking to extend their platforms.
Despite these strengths, Piper Sandler points out that the rate of new customer acquisitions for SPS Commerce has slowed materially in the fiscal year 2024. There are expectations on Wall Street for a substantial rebound in new customer adds for fiscal year 2025, but Piper Sandler regards these predictions as slightly optimistic.
The price target set by Piper Sandler is based on valuation multiples that are consistent with SPS Commerce's peers, which trade at approximately 33 times next twelve months (NTM) EBITDA and 28 times calendar year 2026 earnings. The firm suggests that SPS Commerce shares are trading at a fair value when considering the current market environment and the company's profit and growth prospects relative to similar companies in the sector.
In other recent news, SPS Commerce, the cloud-based supply chain management software firm, reported a 21% increase in revenue for Q3 2024, reaching $163.7 million. This growth in revenue was matched by a similar increase in recurring revenue, a key indicator of business stability. Adjusted EBITDA also grew by 19% to $48.4 million. These figures reflect the company's robust growth, which has been partly driven by strategic acquisitions such as SupplyPike and Traverse Systems.
Baird, a financial services firm, has raised the price target for SPS Commerce to $188 from $186, maintaining a Neutral rating on the stock. This adjustment follows the company's strong Q3 performance and the impact of mergers and acquisitions.
For Q4 2024, SPS Commerce projects a revenue between $168.5 million and $169.5 million, with the full-year revenue expected to grow by 18% to 19%. The company is also reassessing its total addressable market and will provide updates in 2025. These projections and strategies indicate recent developments in the company's financial performance and future plans.
InvestingPro Insights
SPS Commerce's financial metrics and market position offer additional context to Piper Sandler's analysis. According to InvestingPro data, the company's market capitalization stands at $7.11 billion, with a P/E ratio of 88.04, significantly higher than the industry average. This high valuation is reflected in an InvestingPro Tip, which notes that SPSC is "Trading at a high earnings multiple."
Despite the concerns about slowing customer acquisition, SPS Commerce has demonstrated strong financial performance. The company's revenue grew by 19.04% over the last twelve months, reaching $611.82 million. This growth is complemented by a healthy gross profit margin of 66.63%, indicating efficient operations.
An InvestingPro Tip highlights that SPS Commerce "Operates with a moderate level of debt," which aligns with the company's stable financial position in a growing market. This conservative financial approach may provide flexibility for future growth initiatives or market challenges.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for SPS Commerce, providing a deeper understanding of the company's financial health and market position.
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