Geographic Expansion And New Products Will Strengthen Market Position

Key Takeaways

• Expansion into EMEA and the Middle East is key to improving market share and client momentum.
  
• New product features and geographic growth will drive increased revenue and profitability.
  
• Geopolitical challenges, involuntary customer churn, and high execution risk threaten Enfusion's revenue stability and growth objectives.

Catalysts

Provides software-as-a-service solutions for investment management industry in the United States, Europe, the Middle East, Africa, and the Asia Pacific.

• Enfusion's ability to expand its product offerings and capture up-market opportunities is expected to drive a higher revenue growth rate of 20% to 22% over the 2025-2027 period by attracting and retaining larger clients.
  
• The rollout of new premium features, such as those included in the Portfolio Workbench tool, is anticipated to enhance client adoption and support revenue expansion for both new and existing customers, thereby boosting overall earnings.
  
• Enfusion's strategic focus on expanding its geographic footprint in regions like EMEA and the Middle East should contribute to substantial revenue growth and improved market share, aligning with its increased client win momentum and average deal sizes.
  
• Enhancements to managed services, alongside opportunities to upsell, are expected to increase operational productivity and margins, positively impacting net margins and overall profitability.
  
• Plans to explore pricing opportunities and deploy new product capabilities suggest potential for improving net revenue retention rates and accelerating revenue growth from the back book, contributing to higher earnings in the long term.

Enfusion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enfusion's revenue will grow by 17.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 19.4% in 3 years time.
• Analysts expect earnings to reach $61.4 million (and earnings per share of $0.42) by about December 2027, up from $2.7 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 28.8x on those 2027 earnings, down from 366.0x today. This future PE is lower than the current PE for the US Software industry at 41.2x.
• Analysts expect the number of shares outstanding to grow by 4.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Enfusion Future Earnings Per Share Growth

Risks

• The company faces involuntary churn in EMEA, which affected their growth trajectory. This could impact future revenues negatively if not addressed.
  
• Revenue growth in APAC has moderated due to geopolitical trends and capital outflows. Continued macroeconomic headwinds in this region could threaten revenue stability.
  
• Back book growth has been impacted by geopolitical headwinds in Asia and domestic hedge fund client caution in the US ahead of elections, potentially affecting overall growth and earnings.
  
• Despite new product rollouts, if the back book does not return to the expected 3% to 5% growth, and product deployment and pricing actions do not compensate, revenue objectives might not be met.
  
• There is high execution risk associated with expanding up-market and geographically, requiring successful integration of senior hires and system strategies. Failure might affect the company's net margins.

Valuation

• The analysts have a consensus price target of $9.89 for Enfusion 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 $11.5, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $316.3 million, earnings will come to $61.4 million, and it would be trading on a PE ratio of 28.8x, assuming you use a discount rate of 7.0%.
• Given the current share price of $10.58, the analyst's price target of $9.89 is 6.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.