SPS Commerce: Caught in the Crosshairs of Trade Uncertainty

SPS Commerce experienced a 25% pullback in June, which led to slower growth. As a result, the company's shares became more appealing, but the author did not see a strong case for the stock at the time.

SPS Commerce (NASDAQ:SPSC) has experienced a significant market volatility, with a notable 25% pullback in June. This decline was driven by a combination of slower growth and trade uncertainty, which made the stock more appealing but left investors cautious about the investment case. The company's stock price has since recovered somewhat, but the broader market conditions and the company's own growth trajectory remain a concern.

SPS Commerce operates in the Electronic Data Integration (EDI) sector, providing services to over 100,000 companies. The company's revenue has grown significantly, from $150 million in the mid-2010s to around $750 million in 2024, largely driven by acquisitions. However, this growth has been accompanied by dilution and increased stock-based compensation expenses, which have impacted earnings.

The company's second quarter 2025 earnings report showed a 22% increase in sales to $187 million, but GAAP earnings were significantly lower due to stock-based compensation expenses. Adjusted earnings were $1.00 per share, but realistic earnings, excluding these expenses, were around $0.70 per share. This suggests that the company's earnings growth may not be as robust as initially perceived.

Looking ahead, SPS Commerce has guided for sales to increase between 19-20% for the full year, with adjusted earnings seen between $3.78-$3.84 per share. However, stock-based compensation expenses are expected to increase, which could stagnate earnings growth. The company's valuation multiple has also been demanding, trading at around 5 times sales and 38 times earnings based on realistic earnings power.

The lower pace of growth and the high valuation multiple make the investment case for SPS Commerce less compelling. While the company has shown resilience in the face of trade uncertainty, the slower growth and the impact of stock-based compensation expenses on earnings growth are significant concerns. Investors should closely monitor the company's ability to maintain its growth trajectory and manage its expenses.

References:
[1] https://finance.yahoo.com/news/sps-commerce-inc-nasdaq-spsc-121948046.html
[2] https://seekingalpha.com/article/4817603-sps-commerce-victim-of-trade-uncertainty