SPSC sells on-demand supply chain management and visibility solutions. Specifically, the company provides cloud-based electronic data interchange (EDI) solutions and supply chain analytics to keep trading partners’ (retailers & suppliers) interactions aligned. Founded in 1987 and public since April 2010, SPSC is headquartered in Minneapolis, MN.
We recently attended several meetings with investors in order to listen to the SPS story again. We learned some interesting tidbits that augment our nearly 15 years of tracking this company from its early days as a tiny but promising St. Paul-based firm. The key for investors is that this story is far from done.
SPS has a long way to run, in our opinion. We’d be buyers today and use any, likely temporary, sell-offs to fill out a position.
Story has legs. We estimate that SPS has penetrated about 11% of a narrowly defined and 5% of a more broadly defined $1.8 billion
addressable market. We make the out-of-consensus case for long-term 30% operating margins, which is higher than management’s target of 20-
25%. If we are right, this means 10 years of 100-200 basis point annual margin improvements are ahead for this company.
Competitive set. We discuss our view of the innovator’s dilemma that legacy vendors face as well as broadly speculate on some of SPS’s private
Thinking about valuation: probably not much multiple expansion, but nice growth. While we cannot make the case that SPS is cheap, the firm,
in our opinion, has attractive long-term potential. We stress that our assessment, as is the case for every company public or private, could be
wholly devoid of accuracy when it comes to future events. For entities willing to accept the substantial risks of investing, our view is that they
could expect SPS’s multiples to stay relatively stable, which implies a stock price that could advance approximately in line with the firm’s
projected organic revenue growth of ~20%.
- SPS Commerce Reports First Quarter 2013 Financial Results (virtual-strategy.com)