Launching Capital Micro Lending Service Will Help Small And Medium Businesses

Key Takeaways

• Growth in micro markets and Smart Stores, along with international expansion, is driving revenue through higher transaction volumes and new market entry.
  
• Initiatives like micro-lending, digital advertising, and product innovations contribute to enhanced profitability and address capital, marketing, and operational challenges.
  
• High operating expenses from acquisitions and reliance on risky projections, micro markets, and domestic sales threaten growth amid market fluctuations and competition.

Catalysts

A digital payments and software services company, provides technology solutions for self-service commerce market.

• Cantaloupe continues to see strong growth in micro markets and Smart Stores due to increased transaction volumes and customer expansion, which is likely to enhance revenue through greater penetration and higher sales per location.
  
• The company is expanding its international operations, particularly in Europe and Latin America, which is expected to drive future revenue growth as new markets are tapped and existing ones are expanded.
  
• The launch of the Cantaloupe Capital micro lending service aims to solve capital constraints for small and medium business customers, facilitating device and market expansion, potentially boosting equipment sales and subscription revenues.
  
• The Cantaloupe AdVantage program taps into digital advertising at point-of-sale devices, opening a new revenue stream that could improve net margins by leveraging existing assets for higher-margin advertising income.
  
• The integration of SB Software and new product innovations like Smart Store 600 and 700 are expected to drive revenue and profitability by addressing labor shortages and theft while capturing a wider range of retail opportunities.

Cantaloupe Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cantaloupe's revenue will grow by 16.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $54.8 million (and earnings per share of $0.57) by about March 2028, up from $14.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, down from 37.5x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

Cantaloupe Future Earnings Per Share Growth

Risks

• The financial results heavily rely on forward-looking statements, which are inherently risky as actual results may vary significantly from projections, affecting potential revenues and profits.
  
• The company incurs high operating expenses due to recent acquisitions, which can strain net margins and impact overall profitability if not managed efficiently.
  
• There is a significant dependency on micro markets and Smart Stores for growth, which could pose a risk if market demand fluctuates or competitors introduce similar products at more competitive rates, affecting future revenues.
  
• The international market contribution remains under 5% of total revenue, suggesting potential overreliance on the domestic market, which may hinder revenue growth during domestic economic downturns or market saturation.
  
• Equipment revenue has decreased by 7% compared to the prior year, which could indicate dwindling demand or increased competition in the equipment segment, posing a risk to overall revenue growth.

Valuation

• The analysts have a consensus price target of $12.5 for Cantaloupe 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 $14.0, and the most bearish reporting a price target of just $11.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $445.8 million, earnings will come to $54.8 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 7.1%.
• Given the current share price of $7.61, the analyst price target of $12.5 is 39.1% 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.