Self-storage Demand Will Wane Amid Credit And Supply Headwinds

Key Takeaways

• Weakness in core self-storage markets and customer concentration expose Janus to ongoing revenue instability, with limited signs of demand recovery or growth acceleration.
  
• Reliance on acquisitions and exposure to supply chain volatility and inflation heighten risks to profitability and constrain future earnings expansion.
  
• Strong growth from smart entry systems, international expansion, and acquisitions, supported by high liquidity and R3 market potential, positions Janus well for long-term value creation.

Catalysts

Janus International Group, Inc. manufacturers and supplies turn-key self-storage, commercial, and industrial building solutions in North America and internationally.

• Persistently high interest rates and tighter credit conditions continue to weigh on new construction and commercial real estate activity, resulting in an 8.2% year-over-year revenue decline and a 14.8% drop in new self-storage construction-suggesting that future revenue growth is likely to remain challenged rather than rebound.
  
• Structural headwinds from digital transformation and the normalization of remote work could significantly erode long-term demand for physical self-storage, directly impacting Janus's core market exposure and reducing its long-term addressable revenue base.
  
• Customer concentration within self-storage leaves Janus exposed to further market share losses or project delays among key clients, as evidenced by sustained weakness in R3 sales and a lack of clear acceleration in retrofit and renovation demand, which threatens both revenue stability and earnings visibility.
  
• Ongoing reliance on acquisitions to bolster top-line growth introduces increasing risk of operating inefficiencies and diluted acquisition returns, especially as long-term industry demand plateaus or declines, thereby compressing operating margins and constraining earnings growth.
  
• Supply chain volatility, elevated steel and component input costs (including a projected recurring annual tariff impact of six to eight million dollars), and the risk of persistent inflation could further erode profitability in coming years, limiting improvement in net margins and challenging long-term earnings power.

Janus International Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Janus International Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Janus International Group's revenue will grow by 4.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.8% today to 12.9% in 3 years time.
• The bearish analysts expect earnings to reach $132.8 million (and earnings per share of $1.03) by about August 2028, up from $43.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 32.1x today. This future PE is lower than the current PE for the US Building industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.

Janus International Group Future Earnings Per Share Growth

Risks

• Janus has demonstrated growing adoption of its Noke Smart Entry System, with installed units rising 26.6% year-over-year and building strong momentum for 2025 and beyond, which could generate recurring revenue streams and higher margins, improving both revenue and net earnings over the long term.
  
• The ongoing recovery and strong margin performance in Janus's International segment, with revenue up 58% year-over-year in the latest quarter, signals success in overseas markets and diversification outside North America, which supports both top-line growth and reduced geographic risk for future earnings.
  
• Recent acquisitions such as TMC are already contributing to revenue and market share gains, and management continues to emphasize M&A as a core strategy, which when executed successfully can drive sustained revenue growth and operational leverage over the long run.
  
• The company's robust balance sheet, significant liquidity of over $244 million, and aggressive share repurchase program-with $81 million remaining authorized-demonstrate strong cash generation, enabling continued investment, potential for dividend returns, and long-term support for shareholder value.
  
• With over 60% of US self-storage facilities more than 20 years old, there is a long runway for R3 (replacement, remodel, and retrofit) demand as customers focus capex on modernizing existing properties, creating consistent, multi-year revenue opportunities for Janus's core products and retrofit services.

Valuation

• The assumed bearish price target for Janus International Group is $9.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Janus International Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $132.8 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 9.1%.
• Given the current share price of $10.09, the bearish analyst price target of $9.0 is 12.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.