Apollo Platform Expected To Transform Apparel And Footwear Industries

Key Takeaways

• Kornit's innovative models and strategic market expansions are poised to drive substantial revenue growth and enhance profitability.
  
• Share buybacks and operational improvements will likely boost EPS and improve net margins significantly over time.
  
• Kornit's reliance on near-shore manufacturing and the success of new solutions like the Apollo platform face risks from geopolitical uncertainties, operational challenges, and fluctuating profit margins.

Catalysts

Develops, designs, and markets digital printing solutions for the fashion, apparel, and home decor segments of printed textile industry in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally.

• Kornit Digital's introduction of the Apollo platform and strong market response indicates a significant increase in future sales, supporting revenue growth from new and existing customer adoption.
  
• Expansion into new strategic markets, such as bulk apparel and footwear, signifies a shift from analog to digital, which is likely to drive substantial revenue increases as these industries adopt Kornit's technology.
  
• Kornit's All-Inclusive Click (AIC) model is generating meaningful annual recurring revenue (ARR), which will enhance revenue predictability and potentially improve net margins due to higher-margin services.
  
• The company's cost base reductions and operational improvements, combined with the innovative AIC business model, are expected to enhance profitability and improve net margins over time.
  
• The completion of a significant share repurchase program is anticipated to influence earnings per share (EPS) positively by reducing the number of outstanding shares, alongside the expected profitability improvement.

Kornit Digital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kornit Digital's revenue will grow by 7.8% annually over the next 3 years.
• Analysts are not forecasting that Kornit Digital will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Kornit Digital's profit margin will increase from -8.2% to the average US Machinery industry of 9.1% in 3 years.
• If Kornit Digital's profit margin were to converge on the industry average, you could expect earnings to reach $23.3 million (and earnings per share of $0.57) by about May 2028, up from $-16.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 68.9x on those 2028 earnings, up from -51.0x today. This future PE is greater than the current PE for the US Machinery industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 3.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.22%, as per the Simply Wall St company report.

Kornit Digital Future Earnings Per Share Growth

Risks

• Kornit Digital's reliance on near-shore manufacturing could be impacted by geopolitical uncertainties, such as potential tariffs on Mexico, which could affect their supply chain and consumer purchasing power, potentially impacting revenue and margins.
  
• The company's revenue in 2024 decreased compared to 2023 due to lower system and services sales, which could indicate challenges in maintaining consistent top-line growth in an unpredictable market environment.
  
• While Kornit introduced innovative solutions and achieved new customer adoption, the scaling of these solutions, like the Apollo platform, requires significant execution capacity and carries the risk of operational challenges, affecting future revenue growth and profitability.
  
• The company's positive outlook heavily depends on the success and adoption rate of its All-Inclusive Click model and Apollo systems; slower uptake or technological challenges could negatively impact projected revenue and margins.
  
• Kornit’s guidance for Q1 2025 anticipates negative adjusted EBITDA margins due to seasonal weakness and potentially subdued revenue growth, which could suggest earnings volatility and concerns about maintaining overall profitability in the short term.

Valuation

• The analysts have a consensus price target of $30.0 for Kornit Digital 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 $39.0, and the most bearish reporting a price target of just $22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $255.7 million, earnings will come to $23.3 million, and it would be trading on a PE ratio of 68.9x, assuming you use a discount rate of 9.2%.
• Given the current share price of $18.62, the analyst price target of $30.0 is 37.9% 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.