Falling Demand And Competition Will Compress Margins But Boost Resilience

Key Takeaways

• Growing interest in digital assets and ESG trends may restrict demand and customer growth for physical precious metals, challenging A-Mark's future market expansion.
  
• Margin pressure from industry competition and pricing transparency could erode profitability, despite recent gains from acquisitions and operational efficiencies.
  
• Weak organic demand, rising costs from acquisitions, regulatory uncertainty, fierce competition, and overreliance on acquired customers threaten profitability and sustainable long-term growth.

Catalysts

Operates as a precious metals trading company.

• While A-Mark has realized significant increases in gross profit and margin from its recent acquisitions and integration initiatives, ongoing global momentum toward digital assets as an alternative store of value could put downward pressure on physical precious metals demand and constrain long-term revenue growth for the company.
  
• Although international expansion, especially through LPM in Singapore and Southeast Asia, should broaden A-Mark's distribution footprint, strengthening global ESG priorities and environmental regulations may ultimately make precious metals distribution less attractive for institutional or younger investors, limiting addressable customer growth and future market share gains.
  
• Despite the company's ability to scale and optimize costs through automation and centralized logistics, intense competition from both established and technology-enabled bullion distributors may continue to compress gross and net margins as A-Mark is forced to compete on price, eroding profitability over time.
  
• While strategic acquisitions have expanded A-Mark's total customer base and higher-margin offerings, shifts toward greater price transparency, algorithmic pricing and commoditization in the bullion industry could result in tighter spreads and lower gross profit opportunities for traditional distributors.
  
• Even though macroeconomic and geopolitical uncertainty tends to boost safe haven demand for precious metals in certain cycles, a prolonged period of global economic stability or declining inflation rates would likely dampen investor interest, leading to slower inventory turnover and weaker net earnings for A-Mark moving forward.

A-Mark Precious Metals Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on A-Mark Precious Metals compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming A-Mark Precious Metals's revenue will grow by 6.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.2% today to 0.9% in 3 years time.
• The bearish analysts expect earnings to reach $123.1 million (and earnings per share of $5.13) by about September 2028, up from $17.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.0x on those 2028 earnings, down from 34.2x today. This future PE is lower than the current PE for the US Retail Distributors industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 6.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.54%, as per the Simply Wall St company report.

A-Mark Precious Metals Future Earnings Per Share Growth

Risks

• The continued decline in gold and silver ounces sold, with gold sales down 11% and silver sales down 32% year-over-year, alongside significant drops in new customer acquisitions not related to acquisitions, suggests underlying organic demand weakness which, if it persists, could directly impact the company's long-term revenue growth potential.
  
• Rising SG&A expenses, which increased 55% year-over-year, along with substantial increases in depreciation, amortization, and interest expenses related to recent acquisitions, may erode net margins over time, especially if integration synergies and cost savings do not materialize as quickly or fully as projected.
  
• Continued volatility and unpredictability in global tariffs and regulatory policy-especially the recent disruptions caused by tariffs on imported precious metals and shifting guidance from government agencies-introduce uncertainty and higher carry costs, directly impacting both gross profit and net income.
  
• Intensified industry competition and the commoditization of bullion products, as evidenced by shrinking premiums on silver rounds relative to large industrial bars, threaten to compress gross margins and limit A-Mark's ability to achieve premium pricing, reducing gross profit over time.
  
• Customer concentration in recent growth-where the majority of new customers result from acquisitions rather than organic channels-exposes the firm to the risk that a slowdown in M&A, integration failures, or key customer attrition could materially impact topline revenue and earning stability in the longer term.

Valuation

• The assumed bearish price target for A-Mark Precious Metals is $29.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of A-Mark Precious Metals's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $63.0, and the most bearish reporting a price target of just $29.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $13.2 billion, earnings will come to $123.1 million, and it would be trading on a PE ratio of 9.0x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $24.04, the bearish analyst price target of $29.0 is 17.1% 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.