Should You Think About Buying SPS Commerce, Inc. (NASDAQ:SPSC) Now?
SPS Commerce, Inc. (NASDAQ:SPSC), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$114 and falling to the lows of US$95.33. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether SPS Commerce's current trading price of US$103 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at SPS Commerce’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for SPS Commerce
Is SPS Commerce still cheap?
SPS Commerce is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 79.63x is currently well-above the industry average of 52.62x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, SPS Commerce’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will SPS Commerce generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a relatively muted profit growth of 5.2% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for SPS Commerce, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in SPSC’s outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe SPSC should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on SPSC for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for SPS Commerce and we think they deserve your attention.
If you are no longer interested in SPS Commerce, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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