Singapore DTC Launch And Stack's Bowers Acquisition Will Open New Markets

Key Takeaways

• Expansion initiatives and acquisitions in logistics and Asia could streamline operations and drive revenue by tapping into new, higher-margin markets.
  
• Focus on premium collectible markets and direct-to-consumer strategies suggests potential for increased revenue and improved net margins.
  
• Declining net income, increased expenses, and higher interest costs signal pressure on A-Mark's profitability and shareholder returns.

Catalysts

Operates as a precious metals trading company.

• The completion of A-Mark's facility expansion and logistic initiatives in Las Vegas could streamline operations and enhance efficiency, potentially improving net margins.
  
• Expanding its presence in Asia with a direct-to-consumer (DTC) channel in Singapore may drive revenue growth by tapping into new markets.
  
• The acquisition of Spectrum Group International, including Stack's Bowers Galleries, is expected to enhance cross-selling opportunities and penetrate higher-margin markets, likely increasing future earnings.
  
• Increased new customer acquisitions and higher average order values in the DTC segment imply potential revenue growth, as a broader customer base can lead to higher sales.
  
• The strategic focus on diversifying product offerings, such as entering premium collectible markets, might improve net margins due to higher-margin products compared to traditional bullion sales.

A-Mark Precious Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming A-Mark Precious Metals's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $96.5 million (and earnings per share of $3.66) by about March 2028, up from $51.5 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 13.1x on those 2028 earnings, up from 12.3x today. This future PE is lower than the current PE for the US Retail Distributors industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.28%, as per the Simply Wall St company report.

A-Mark Precious Metals Future Earnings Per Share Growth

Risks

• The decrease in gross profit margin from 2.22% to 1.63% due to lower profits from the Wholesale Sales & Ancillary Services segment could negatively impact net margins.
  
• Rising SG&A expenses, which increased by 15% and 18% for the quarter and six-month periods respectively, primarily due to higher consulting, advertising, and compensation costs, could put additional pressure on net income.
  
• Earnings from equity method investments saw a significant decline, turning into a loss for the quarter and six-month period, potentially impacting the overall earnings of the company.
  
• The company's net income attributable to shareholders decreased substantially, from $13.8 million to $6.6 million year-over-year for Q2, indicating pressure on earnings and shareholder returns.
  
• Increased interest expenses due to higher borrowings and financing costs, particularly from liabilities on borrowed metals, could further strain net margins and profitability.

Valuation

• The analysts have a consensus price target of $42.2 for A-Mark Precious Metals 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 $63.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.4 billion, earnings will come to $96.5 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $27.44, the analyst price target of $42.2 is 35.0% 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.