Why SPS Commerce Stock Is Soaring Today

SPS Commerce (SPSC 14.91%) stock is making huge gains in Friday’s trading. The supply chain software company’s shares were up 16.5% as of 2 p.m. ET, according to data from S&P Global Market Intelligence.

SPS Commerce released its fourth-quarter results after the market closed yesterday. Sales and earnings for the period beat Wall Street estimates. The company recorded non-GAAP (adjusted) earnings per share of $0.75 on revenue of $145 million, topping analysts’ average estimate for per-share earnings of $0.70 on sales of $142.79 million.

Strong business momentum has investors feeling bullish

SPS’ revenue increased 18.9% year over year in the fourth quarter, and recurring revenue jumped 19% compared to the prior-year period. Meanwhile, adjusted earnings per share were up approximately 19%.

The company closed out last year with 44,800 recurring revenue customers, good for an increase of 6% year over year. But thanks to rising spending from those already using its services, recurring revenue was up 20% annually. Overall revenue climbed 19% to hit $536.9 million, and full-year adjusted earnings per share grew roughly 21% to $2.85.

What comes next for SPS Commerce?

For the first quarter, SPS is guiding for sales of $145.9 million to $146.7 million. Meanwhile, adjusted earnings per share are projected to be between $0.72 and $0.73.

For the full year, management is targeting sales between $616.5 million and $619 million, which would equal growth of 15% at the midpoint of the guidance range. Adjusted earnings per share for the year are forecast to come in at $3.11 to $3.13, increasing 9.5% at the midpoint. Management also said that it continued to expect annual sales growth of 15% or more beyond 2024.

SPSC PE Ratio (Forward) data by YCharts

SPS stock is now up roughly 56% over the past year, and it is valued at roughly 12.7 times average sales expectations and 67.7 times average earnings expectations for 2024. That’s a heavily growth-dependent valuation — particularly in light of management’s earnings growth target for the year. On the other hand, SPS appears to have a foundation in place that will help it capitalize on much larger long-term opportunities in the expanding supply chain software industry.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SPS Commerce. The Motley Fool has a disclosure policy.

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