Gen2X Launch Will Drive RAIN System Demand, But Supply Chain Issues May Impact Profits

Key Takeaways

• Launch of Gen2X may boost revenue through increased demand and improved gross margins due to cost-effective design.
  
• Strategic opportunities in retail and supply chain sectors are expected to drive sustained revenue and earnings growth.
  
• Impinj faces geopolitical and market challenges that could disrupt supply chains, compress prices, and lead to revenue stagnation and lower profitability.

Catalysts

Operates a cloud connectivity platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa.

• The launch of Gen2X, which enhances the performance and security of RAIN systems, could drive increased demand from enterprise customers, potentially boosting revenue and improving gross margins due to its more cost-effective design.
  
• Engagements with large grocery chains exploring item-level food tagging present significant future growth opportunities, which could expand revenue as these projects potentially ramp in 2026.
  
• Expansion in retail apparel and general merchandise, along with ongoing and new opportunities in supply chain and logistics, are expected to sustain label demand growth and contribute to revenue and earnings over time.
  
• The focus on accelerating the adoption of the M800, which has lower ASPs but also lower production costs, could improve gross margins once it becomes a larger part of the product mix.
  
• Short-term inventory challenges and demand fluctuations are being actively managed, potentially setting the stage for operating margin recovery and profitability improvement as the company regains momentum.

Impinj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Impinj's revenue will grow by 14.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 11.2% today to 9.6% in 3 years time.
• Analysts expect earnings to reach $52.5 million (and earnings per share of $0.61) by about April 2028, up from $40.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $60 million in earnings, and the most bearish expecting $45 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 109.4x on those 2028 earnings, up from 46.1x today. This future PE is greater than the current PE for the US Semiconductor industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.42%, as per the Simply Wall St company report.

Impinj Future Earnings Per Share Growth

Risks

• Impinj faces geopolitical uncertainty and tariffs, which could disrupt supply chains and sourcing decisions, potentially impacting revenue and profit margins.
  
• The company reports disruptions from aggressive price shopping for labels, which could compress prices and affect their revenue and margins.
  
• Impinj is experiencing a seasonal and unexpected decline in endpoint IC revenue due to partners having excess inventory, which may lead to a short-term decrease in revenue and earnings.
  
• The pipeline for new large program ramps is described as being in a lull, with no significant new ramps expected in the first half of 2025, suggesting potential stagnation in revenue growth during that period.
  
• Impinj is dealing with changes in demand and market dynamics in logistics, alongside competitive pressures in the bonding market, which could lead to sustained periods of lower revenue and profitability.

Valuation

• The analysts have a consensus price target of $141.375 for Impinj 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 $160.0, and the most bearish reporting a price target of just $129.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $546.9 million, earnings will come to $52.5 million, and it would be trading on a PE ratio of 109.4x, assuming you use a discount rate of 9.4%.
• Given the current share price of $66.03, the analyst price target of $141.38 is 53.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.