Recycled PET Demand And India Facility Will Drive Strong Long Term Upside Potential

Catalysts

About Loop Industries

Loop Industries develops and commercializes technology to produce high quality PET resin and monomers from 100 percent recycled feedstock for global packaging and textile markets.

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

• The Infinite Loop India facility is progressing toward a planned late 2027 start up, with construction costs trending below the 176 million dollar estimate, which should support attractive project returns and expanding earnings as capacity ramps.
• Long term offtake agreements, including a global sportswear anchor customer with fixed pricing and take or pay provisions and the Taro Plast DMT contract, create visible multi year revenue streams and reduce demand risk as production scales.
• Strategic partnerships with leading spinners Hyosung and Shinkong integrate Loop’s Twist resin into existing textile supply chains, broadening customer access to recycled polyester and positioning Loop to capture growing apparel and home goods revenue.
• Growing global demand for high quality recycled PET in packaging, alongside European regulations that require higher recycled content and favor local sourcing, sets up the planned European Infinite Loop project to add high margin engineering fees and future resin sales.
• Loop’s ability to produce multiple recycled outputs, including FDA approved bottle grade resin, textile to textile resin, DMT, and MEG, allows dynamic allocation to the highest value markets, which should support higher blended selling prices and stronger net margins over time.

Assumptions

This narrative explores a more optimistic perspective on Loop Industries compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Loop Industries's revenue will grow by 91.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -105.1% today to 15.8% in 3 years time.
• The bullish analysts expect earnings to reach $12.3 million (and earnings per share of $0.19) by about December 2028, up from $-11.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $6.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, up from -4.5x today. This future PE is greater than the current PE for the US Chemicals industry at 23.4x.
• The bullish analysts expect the number of shares outstanding to grow by 0.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.05%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The Infinite Loop India facility and potential European project both require substantial project debt and equity contributions. Any delay in securing financing, cost overruns versus the 176 million dollar estimate, or slippage in the 2027 start up timeline could push out revenue recognition and keep earnings negative for longer, which would pressure free cash flow and net margins.
• A large portion of future demand is tied to a handful of anchor and offtake agreements with a global sportswear brand, Taro Plast and prospective CPG and apparel companies. If sustainability priorities weaken over time, brands reduce green procurement budgets or renegotiate fixed price contracts, Loop could face lower volumes or pricing that directly reduces revenue growth and compresses gross margins.
• The strategy relies on being a low cost producer in India and on modularized facilities for Europe. Long term shifts in labor costs, energy prices, logistics, feedstock availability or regulatory changes in India and Europe could erode the cost advantage, forcing Loop to offer lower prices to remain competitive and thereby reducing operating margins and overall profitability.
• Loop’s differentiated position in recycled DMT and MEG targets spot driven chemical markets that are inherently cyclical. A downturn in specialty polymers, automotive or electronics demand, or new fossil based or recycled competitors, could depress selling prices for these monomers and weaken the diversified revenue streams and blended net margins the narrative depends on.

Valuation

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

• The assumed bullish price target for Loop Industries is $6.1, which represents up to two standard deviations above the consensus price target of $4.55. This valuation is based on what can be assumed as the expectations of Loop Industries's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.1, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $77.9 million, earnings will come to $12.3 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $1.09, the analyst price target of $6.1 is 82.1% 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.