Acquisitions And Asia Pacific Expansion Will Extend Market Reach

Key Takeaways

• Expanding the buyer base, value-added services, and strategic acquisitions is expected to boost revenue growth and market reach.
  
• Focus on modernizing the platform and strategic acquisitions may enhance operational efficiency, margins, and long-term earnings.
  
• Expansion initiatives and acquisitions may not immediately boost earnings, while reliance on vehicle flow and potential tariffs could challenge revenue stability and growth.

Catalysts

Provides e-commerce marketplaces, self-directed auction listing tools, and value-added services in the United States and internationally.

• Liquidity Services is expected to benefit from expanding its buyer base and value-added services, which could drive future revenue growth as more sellers and buyers participate on its platform.
  
• The acquisition of Auction Software and Simple Auction Site will likely extend the company's market reach and enhance its software development capabilities, potentially leading to higher revenue and improved margins through SaaS offerings.
  
• Significant growth in the GovDeals and CAG segments, with the addition of high-value goods and a broader seller base, may lead to increased revenues and profits as these segments continue to expand.
  
• The Machinio segment's expansion into the Asia Pacific region and increasing subscriber base could contribute to revenue growth by tapping into new markets and increasing its global presence.
  
• Liquidity Services' strategic focus on bolt-on acquisitions and platform modernization is expected to drive operational efficiencies and improve customer experience, potentially enhancing net margins and supporting long-term earnings growth.

Liquidity Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liquidity Services's revenue will grow by 16.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.8% today to 5.6% in 3 years time.
• Analysts expect earnings to reach $36.5 million (and earnings per share of $1.13) by about March 2028, up from $23.9 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 43.8x on those 2028 earnings, up from 38.3x today. This future PE is greater than the current PE for the US Commercial Services industry at 29.8x.
• Analysts expect the number of shares outstanding to grow by 1.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Liquidity Services Future Earnings Per Share Growth

Risks

• The expansion of lower-touch purchase programs in the Retail segment might lead to a lower direct profit to revenue ratio, potentially impacting net margins.
  
• The acquisition of Auction Software and Simple Auction Site, although described as strategically beneficial, may not materially impact consolidated results in the short term, which could delay anticipated earnings growth.
  
• The GovDeals segment's reliance on healthy vehicle flow could face challenges if supply chain disruptions reoccur, impacting future GMV and revenue from this segment.
  
• Potential tariffs could create uncertainties and market conditions that might not be fully predictable, impacting revenue growth.
  
• Steep growth projections could encounter risks related to execution, particularly in highly competitive segments like Machinio’s expansion in the Asia Pacific, which might impact future earnings.

Valuation

• The analysts have a consensus price target of $41.0 for Liquidity Services based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $650.6 million, earnings will come to $36.5 million, and it would be trading on a PE ratio of 43.8x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $29.5, the analyst price target of $41.0 is 28.0% 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.