Expansion Into Ecuador And Operational Efficiencies Will Drive Future Success

Key Takeaways

• Expanding market share and strategic brand efforts could enhance revenue growth, market presence, and profitability.
  
• Focus on international expansion and acquisitions may diversify revenue and improve earnings through new streams and cost synergies.
  
• Currency depreciation, international supply chain challenges, and inventory issues threaten Betterware Mexico's margins, revenue growth, and operational efficiency.

Catalysts

Operates as a direct-to-consumer selling company in the United Staes and Mexico.

• Betterware Mexico plans to deepen market penetration by expanding its share in the household product market, aiming to increase its current 4% market share, which could drive revenue growth.
  
• Jafra Mexico's continued double-digit growth and strategic brand revitalization efforts are expected to enhance its market presence and profitability, positively impacting net margins and earnings.
  
• The strategic focus on international expansion, particularly with new operations in Ecuador, could open new revenue streams and contribute to revenue growth in regions with higher growth potential.
  
• The company's ongoing focus on inorganic growth, by exploring acquisitions that complement existing brands or introduce new categories, could diversify revenue sources and improve earnings.
  
• Enhancing operational efficiency and implementing centralized processes across support areas could lead to cost synergies, positively impacting net margins and overall financial performance.

Betterware de MéxicoP.I. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Betterware de MéxicoP.I. de's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 11.8% in 3 years time.
• Analysts expect earnings to reach MX$2.0 billion (and earnings per share of MX$53.53) by about March 2028, up from MX$711.7 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 10.5x on those 2028 earnings, down from 12.1x today. This future PE is lower than the current PE for the US Specialty Retail industry at 13.5x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.93%, as per the Simply Wall St company report.

Betterware de MéxicoP.I. de Future Earnings Per Share Growth

Risks

• The depreciation of the Mexican peso and rising product import duties could significantly impact Betterware Mexico's cost structure, affecting net margins and profitability.
  
• Unexpected challenges in the international supply chain, including a sharp freight price increase and product availability issues, could hinder Betterware Mexico's competitiveness and revenue growth.
  
• Slow adoption of new technologies, such as the implementation issues experienced with Shopify+ at Jafra U.S., may negatively impact revenue by compromising operational efficiency and associate engagement.
  
• Political disruptions in the United States, particularly potential increases in product import duties on Mexican and Chinese goods, could pose risks to U.S. operations and affect earnings.
  
• Inventory management issues, such as the overstock situation leading to higher-than-desired inventory levels, could result in increased holding costs and put pressure on cash flow and net margins.

Valuation

• The analysts have a consensus price target of $20.367 for Betterware de MéxicoP.I. de 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 $22.57, and the most bearish reporting a price target of just $18.16.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$17.0 billion, earnings will come to MX$2.0 billion, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 11.9%.
• Given the current share price of $11.57, the analyst price target of $20.37 is 43.2% 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.