SPSC Stock Study (6-9-26)

I recently did a stock study on SPS Commerce Inc. (SPSC, $55.21).

M* writes:

     > SPS Commerce Inc is a provider of cloud-based supply chain management
     > services for retailers, grocers, distributors, suppliers, and logistics firms
     > to increase supply chain performance, optimize inventory levels and
     > sell-through, reduce operational costs, improve order visibility, and satisfy
     > consumer demands for a seamless omnichannel experience. Its solutions are
     > delivered through the SPS Commerce platform and provide integrations and
     > retail performance analytics to its customers. The company has one
     > operating segment Supply Chain Management Solutions, that derives revenues
     > from customers by providing access to cloud-based supply chain management
     > services, primarily under subscription-based service arrangements.

Since 2018 (excluding ’16 due to small EPS base and ’17 due to negative EPS—either of which would arithmetically exaggerate growth rate), this small-size company has grown sales and earnings 17.7% and 18.3% per year, respectively. Lines are mostly up, straight, and parallel except for EPS dip in ’21. Value Line (VL) gives an Earnings Predictability score of 70. Shares outstanding increase 8.0% (1.0%/year).

Since 2018, PTPM leads peer and industry averages while increasing from 4.6% to 16.5% (’25) with a last-5-year mean of 15.5%. ROE leads peer averages but trails the industry while ranging from 7.6% in ’18 to 11.3% in ’20 with a last-5-year mean of 9.8% (shareholder equity consistently positive with 16.3% CAGR). Debt-to-Capital is less than peer and industry averages with a last-5-year mean of 2.3%.

Quick ratio is 1.4 and interest coverage N/A (effectively debt-free) per M* who gives a B grade for Financial Health (per BetterInvesting® website). VL gives a B++ grade for Financial Strength.

With regard to sales growth:

• YF gives YOY ACE 6.2% and 7.0% for ’26 and ’27, respectively (based on 12 analysts).
• Zacks gives YOY ACE 6.2% and 6.8% for ’26 and ’27 (4 analysts).
• VL projects 7.4% per year from ’25-’30.
• CFRA gives ACE 6.2% YOY and 6.6% per year for ’26 and ’25-’27, respectively (12).

My 5.0% forecast is below the range.

With regard to EPS growth:

• MarketWatch gives ACE 10.7% and 12.2% per year for ’25-’27 and ’25-’28, respectively (based on 14 analysts).
• Nasdaq.com gives ACE 13.2% YOY and 20.6% per year for ’27 and ’26-’28 [6 / 5 / 1 analyst(s) for ’26 / ’27 / ’28].
• Finviz gives 5-year annualized ACE of 12.0% (3).
• YF gives YOY ACE 10.9% and 10.4% for ’26 and ’27, respectively (12).
• Zacks gives YOY ACE 10.8% and 10.6% for ’26 and ’27, respectively (5).
• VL projects 5.9% per year from ’25-’30.
• CFRA gives ACE of 92.3% YOY and 45.7% per year for ’26 and ’25-’27, respectively (12).

My 5.0% forecast is below both long-term estimates (9.0% average). Initial value is 2026 Q1 EPS of $2.40/share (TTM) rather than ’25 EPS of $2.46.

My Forecast High P/E is 38.0. Since 2018, high P/E ranges from 62.9 in ’19 to 113 in ’23 (excluding 144 upside outlier in ’21) with last-5-year mean of 99.7 and a last-5-year-mean average P/E of 81.5. I am well below the range.

My Forecast Low P/E is 18.0. Since 2018, low P/E ranges from 24.8 in ’20 to 78.7 in ’24 with a last-5-year mean of 63.4. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $43.20 is default based on initial value from above: 21.8% less than previous close and 11.8% less than the 52-week low.

These inputs land SPSC in the BUY zone with a U/D ratio of 5.0. Total Annualized Return (TAR) is 16.0%.

PAR (using Forecast Average—not High—P/E) of 9.1% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I start by comparing my inputs with those of Member Sentiment (MS). Based on only 12 studies (too small for anything but anecdotal comparison) done in the past 90 days (four outliers including mine excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 12.4%, 13.6%, 41.5, and 20.5, respectively. I am lower across the board. VL projects a future average P/E of 20.0 that is less than MS (31.0) and less than mine (28.0).

MS high / low EPS are $4.63 / $2.37 versus my $3.06 / $2.40 (per share). My high EPS is less due to a lower growth rate. VL high EPS of $5.70 is greater than both.

MS LSPF of $47.50 implies a Forecast Low P/E of 20.0: less than the above-stated 20.5. MS LSPF is 2.2% less than the default $2.37/share * 20.5 = $48.59 resulting in more conservative zoning. MS LSPF is 10.0% greater than mine, however.

MOS is robust in the study because my inputs are near or less than historical/analyst averages/ranges. MS TAR exceeding mine by 13.2% per year supports the assessment.

With regard to valuation, PEG is 1.7 and 4.4 per M* and my projected P/E: overvalued. Relative Value is fire-sale low at 0.28 [(current P/E) / 5-year-mean average P/E]. “Quick and Dirty” DCF method has stock undervalued by 45% while M* reports the stock at a 29% discount.

Per U/D, SPSC is a BUY right now under $61/share. Given a forecast high price ~$116, the BetterInvesting® TAR criterion is met [116.3 / ((14.87 / 100 ) +1 ) ^ 5] ~ $58 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).