SPS Commerce (SPSC) Making Comeback As E-Commerce Heats Up

SPS Commerce (SPSC) is a Tech stock that recently came back under my radar as shares have shown strong price action since the February sell-off. In trading yesterday, SPSC moved out of a tight bull flag to close back above its 200 day moving average.

The longer term chart shows a stock with a massive double top at the $78 level from 2013 and 2015 peak moves. SPS Commerce stock price was subsequently cut in half from October 2015 to March of 2016. This week saw the stock move back above its 50% Fibonacci retracement at $58.10.

sps commerce stock bullish spsc chart_june 23.jpg

The $1B provider of cloud-based supply chain management solutions enhances the way that customers and retailers fulfill orders. SPSC is benefitting from the expanding adoption of omni-channel strategies, acting as an advisor to retailers and suppliers, and a recent industry survey showed 75% of retailers listed e-commerce growth as the top priority. SPS Commerce products also help suppliers manage inventory, improve margins and grow revenues through the use of analytics.

SPS Commerce (SPSC) shares currently trade 48.55X Earnings, 6.25X Sales, and 4.28X Book with no debt and $6.90/share in cash. SPSC trades 25X FY17 EBITDA and 3.8X EV/Sales. Since 2010 SPSC as seen a 27% revenue CAGR. Other metrics of growth versus 2009 levels include recurring customers up to 23,800 from 11,000, and revenue per customer at $7,000 from $2,900. SPS Commerce projects an opportunity for 200,000 customers and $20,000 revenue/customer, so clearly this $1B Company has a lot of runway left for growth in a $4B market opportunity. SPSC recently saw gross margins dip, but attributed to its ToolBox acquisition and sees low to mid-70 gross margins over the longer term, so room for expansion from current 68.8% level. EPS is projected to reach $1.23/share in FY17, a 50% rise from FY15 levels.

SPS Commerce was a name closely looked at as an M&A target back in 2011 when eBay (EBAY) agreed to buy GSI Commerce for $2.4B, (SPSC was trading near $15/share). The deal for GSI Commerce was at a 53% premium, and 21X EBITDA.

Analysts have an average target on shares of $69.30 with 6 Buy ratings. SPSC does not see a lot of Analyst coverage, but back in March Needham lowered its target to $60 from $86, but noted all industry checks point a strong demand environment for the services SPSC provides as aging technology at retailers will drive incremental investments in the new omni-channel environment.

Unlike many high PE multiple stocks, SPS Commerce stock does not have a large short float, just 3.8% of its float is short. It is a relatively low float stock with just 17M shares, one notable holder is Conestoga Capital, a $1.48B firm that invests in small cap growth, and owns SPSC as its 15th largest holding.

In closing, SPS Commerce is operating strong in a growth market with consistently strong results, and at 3.8X EV/Sales in a SAAS space seeing M&A at 6X, it is an attractive investment for the long term as it continues to add customers and increase customer spend in a strong demand environment for its solutions. A modest pick-up in consumer spending can lead to more investments into Technology by Retailers, and set SPSC up to exceed its long term targets.

Thanks for reading.

Also read:  Cyber-Security M&A Heats Up


Twitter: @OptionsHawk

The author has a long position in SPSC at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


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