Investment In GLP-1 Drug Production Will Unlock New Profit Streams In 2025

Key Takeaways

• Strategic investments in GLP-1 drug compounding and new food products suggest significant future revenue potential in pharmaceuticals and nutraceuticals.
  
• Divestment and operational consolidation are expected to improve future earnings and net margins through efficiency gains.
  
• Rising costs from tariffs and flat TPA sales, combined with reliance on debt, threaten profit margins and impact investor confidence.

Catalysts

Develops, manufactures, and markets specialty chemicals that slow the evaporation of water in Canada, the United States, and internationally.

• The successful commercialization of a food product based on polyaspartates, as well as a pipeline of five additional products with seven-figure revenue potential each, indicates a significant opportunity for revenue growth in 2025.
  
• The company's strategic investment in a production line for GLP-1 drug compounding represents a large potential revenue and profit opportunity in the pharmaceutical sector, particularly in diabetes and weight loss drugs.
  
• The divestment of the Florida LLC, structured to provide $6 million over several years, will eventually lead to reported gains from 2025 onwards, positively impacting future earnings.
  
• The synergies from consolidating operations into a single location in Peru, Illinois, are expected to enhance operational efficiency, leading to improved net margins over time.
  
• Continued efforts to commercialize new food and nutraceutical products, particularly in large and varied markets like sleep aids and hormone supplementation, could result in significant revenue and margin improvements, as these markets align with current expertise and equipment capabilities.

Flexible Solutions International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Flexible Solutions International's revenue will grow by 27.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.8% today to 15.6% in 3 years time.
• Analysts expect earnings to reach $12.4 million (and earnings per share of $0.97) by about February 2028, up from $4.2 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 10.6x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the US Chemicals industry at 21.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Flexible Solutions International Future Earnings Per Share Growth

Risks

• The 25% tariffs on raw materials imported from China continue to increase costs, impacting cost of goods, cash flow, and ultimately reducing net profit margins. The difficulties in obtaining export rebates further exacerbate this issue.
  
• The sale of the Florida LLC resulted in an accounting loss of $385,000, impacting quarterly earnings from $0.07 to $0.05 per share, which could affect net margins and investor perception.
  
• The food division's potential sales growth is dependent on securing advanced orders and partnerships, posing a risk if these do not materialize, thereby impacting future revenue forecasts.
  
• Stability of oil, gas, and industrial sales may not contribute significantly to earnings growth if TPA sales remain flat, affecting overall revenue trends.
  
• The company's reliance on increasing debt, alongside cash reserves, risks higher interest expenses and could affect net earnings if opportunities to reinvest don't yield expected returns.

Valuation

• The analysts have a consensus price target of $9.0 for Flexible Solutions 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 $79.4 million, earnings will come to $12.4 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $6.28, the analyst price target of $9.0 is 30.2% 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.