E Commerce Shift And Pierce 2.0 Transformation Will Strengthen Long Term Earnings Quality

Catalysts

About Pierce Group

Pierce Group operates a leading pan European e-commerce platform focused on motorcycle, snowmobile, and related powersports gear, parts, and accessories.

What are the underlying business or industry changes driving this perspective?

• The ongoing shift from fragmented offline retail to online specialist platforms in European powersports, where Pierce is already the largest e-commerce player with localized sites in up to 28 markets, should support structurally higher revenue growth than the overall market.
• The completion of the Pierce 2.0 transformation, including migration to cloud based SaaS systems and a new high speed e-commerce platform and warehouse management system by early 2026, is expected to unlock SEK 30 million to SEK 40 million in annual EBIT improvement and expand net margins.
• The expansion of addressable categories such as mountain bike and scooter related gear, leveraging a shared rider base and existing brand awareness, should add incremental growth streams and raise overall revenue and earnings resilience across seasons.
• Scale driven efficiency, including sales per white collar FTE up roughly 80 percent over two years and continued automation of processes, is likely to keep overheads growing slower than sales and support operating leverage and margin expansion.
• High and durable private label penetration around the high 30 percent level, combined with potential participation in European market consolidation, should strengthen purchasing power and mix, lifting gross profit in absolute terms and over time improving earnings quality.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Pierce Group's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 8.0% in 3 years time.
• Analysts expect earnings to reach SEK 190.7 million (and earnings per share of SEK 2.35) by about December 2028, up from SEK -10.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from -107.9x today. This future PE is lower than the current PE for the SE Specialty Retail industry at 22.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long term shift from offline to online may be slower or less profitable than expected as omnichannel competitors with physical stores leverage their dual presence to defend share and compress pricing, which would restrict Pierce Group's ability to outgrow the market and pressure revenue growth and gross profit.
• Reliance on high inventory levels to secure assortment and availability in a fragmented market increases the risk of overstock, obsolescence provisions, and aggressive discounting in weaker seasons such as poor snow winters, which could structurally weigh on gross margins and EBIT improvement even as sales grow.
• The Pierce 2.0 transformation and expansion into new localized markets and verticals like mountain bike and scooter may take longer to ramp or fail to gain traction, while overlapping SaaS licensing, legacy system depreciation, and consulting expenses linger beyond 2026, limiting the anticipated SEK 30 million to SEK 40 million uplift in EBIT and delaying sustainable earnings growth.
• Participation in potential European market consolidation is uncertain and may require significant capital, integration capacity, and execution quality, where missteps in integrating acquired platforms, assortments, and back office systems could dilute operating leverage and reduce net margins rather than enhance earnings quality.
• Structural cost pressures from freight volatility, higher shipping rates, and the need to maintain competitive pricing in a price sensitive online environment could offset efficiency gains from performance marketing and headcount reductions, capping future operating leverage and constraining net income growth despite higher sales volumes.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK17.0 for Pierce Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK2.4 billion, earnings will come to SEK190.7 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of SEK13.6, the analyst price target of SEK17.0 is 20.0% 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.