Expanding Into China And Investing In Technology Will Drive Future Success

Key Takeaways

• Expansion into emerging markets and localization strategy are anticipated to drive future revenue growth, with a focus on China.
  
• Proprietary software investment and repeat customer growth are likely to boost customer engagement, revenue, and net margins.
  
• Softening luxury market conditions and high promotional activity may erode margins and pressure revenue growth, impacting long-term profitability.

Catalysts

Engages in the online luxury goods retailing business in Australia, the United States, and internationally.

• Cettire plans to leverage its agile business model to prioritize profitable revenue growth while maintaining a capital-light structure, which is expected to enhance profitability and bolster earnings.
  
• The company is actively expanding its global footprint and implementing a localization strategy, especially targeting emerging markets like China, which is anticipated to drive future revenue growth.
  
• Cettire's efforts to increase the percentage of revenue from repeat customers, coupled with growing average order values, are likely to contribute to sustained revenue growth and improved net margins over time.
  
• The company's investment in its proprietary storefront software supports its global expansion strategy by enhancing customer experience and engagement, potentially increasing revenue and net margins.
  
• The establishment of a diverse, high-quality supply base with low concentration risk provides Cettire with strong resiliency and competitive advantage, which is expected to support consistent earnings growth amidst market fluctuations.

Cettire Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cettire's revenue will grow by 17.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 2.9% in 3 years time.
• Analysts expect earnings to reach A$34.2 million (and earnings per share of A$0.08) by about February 2028, up from A$10.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$48.6 million in earnings, and the most bearish expecting A$26.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, down from 44.0x today. This future PE is greater than the current PE for the AU Specialty Retail industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.69%, as per the Simply Wall St company report.

Cettire Future Earnings Per Share Growth

Risks

• Softening conditions in the luxury market and unusual levels of promotional activity could erode margins and pressure revenue growth.
  
• Increasing marketing costs relative to sales, despite achieving some operational leverage, may impact net margins if not balanced by proportionate revenue increases.
  
• Continued clearance activity and high promotional activity in a competitive environment could affect achieved profit margins.
  
• Increased refund rates pose a risk to net revenue and profitability if not managed effectively, especially if such rates do not improve moving forward.
  
• Market concentration risk in terms of emerging markets, despite efforts to diversify, might impact long-term revenue sustainability if global economic conditions worsen.

Valuation

• The analysts have a consensus price target of A$1.838 for Cettire based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.34, and the most bearish reporting a price target of just A$0.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.2 billion, earnings will come to A$34.2 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of A$1.21, the analyst price target of A$1.84 is 34.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.