Global Expansion And Compostable Plastics Demand Will Shape Future Success

Key Takeaways

• Expansion in Southeast Asia and the Middle East is set to boost oil and gas sales, impacting overall revenue positively in the near future.
  
• Growth in Natur-Tec through new customer acquisitions and product innovation indicates promising sales and margin enhancements.
  
• Geopolitical tensions and economic challenges could impact NTIC's sales and revenue, while high expenses and slow market penetration pose risks to profitability and growth.

Catalysts

Develops and markets rust and corrosion inhibiting solutions in North America, South America, Europe, the Middle East, China, Brazil, India, Rest of Asia, and internationally.

• Expansion in the oil and gas sales infrastructure, particularly in Southeast Asia and the Middle East, is expected to accelerate Zerust Oil & Gas sales in the second half of fiscal 2025, positively impacting revenues.
  
• Strong growth trends in the Natur-Tec segment, driven by new customer wins in North America and India and the development of specialized resins, suggest potential for sustained sales growth and improved net margins.
  
• The improving economic conditions in China, alongside NTIC's strategic focus on expanding its presence in this market, may lead to increased incremental sales and profitability in fiscal 2025 and beyond.
  
• Continuous successful execution of quality system improvement initiatives has resulted in gross margin growth, which is likely to enhance NTIC’s earnings potential.
  
• Increased global demand and development of new applications for compostable plastics products are expected to drive growth in Natur-Tec sales, supporting overall revenue increases.

Northern Technologies International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Northern Technologies International's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 8.5% in 3 years time.
• Analysts expect earnings to reach $9.3 million (and earnings per share of $0.89) by about March 2028, up from $5.1 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 23.7x on those 2028 earnings, up from 20.5x today. This future PE is greater than the current PE for the US Chemicals industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Northern Technologies International Future Earnings Per Share Growth

Risks

• Potential geopolitical tensions and trade issues between China and other countries could impact NTIC's ability to maintain or grow sales in the Chinese market, affecting revenue and profitability.
  
• Economic challenges in Europe, particularly in Germany, could hinder joint venture performance, potentially affecting total income derived from European JVs and putting pressure on NTIC's revenue from these regions.
  
• Continued high operating expenses, driven by increased personnel and strategic investments, could strain net margins, especially if anticipated growth does not materialize as expected.
  
• The oil and gas sector's inherent seasonality and lumpiness might lead to unpredictable sales patterns, which could result in volatility in earnings and cash flow.
  
• The nascent stage of market penetration for NTIC's protection technologies in the oil and gas sector (less than 1%) poses a risk of slow adoption, which could limit the anticipated revenue growth in this segment.

Valuation

• The analysts have a consensus price target of $20.0 for Northern Technologies International 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 $109.5 million, earnings will come to $9.3 million, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 6.9%.
• Given the current share price of $11.0, the analyst price target of $20.0 is 45.0% 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.