Debt Reduction And Capital Flexibility Will Support Future Position

Key Takeaways

• Reduced debt and divestiture of a loss-making business are likely to enhance net margins and improve future earnings.
  
• Focus on capital flexibility, operational improvements, and strategic growth could significantly boost future revenue and earnings potential.
  
• Lack of returns from investments and external market unpredictability threaten profitability and future earnings, compounded by customer losses and absence of 2025 guidance.

Catalysts

Provides traceability and customer support services through software and process technology.

• The company retired its bank debt and reduced convertible debt, which should improve future earnings by decreasing interest expenses and enhancing net margins.
  
• A $15.8 million at-the-market sales offering provides VerifyMe with additional capital flexibility to pursue growth opportunities, potentially impacting future revenue positively.
  
• Investments in hiring additional sales resources and piloting new marketing strategies in the Precision Logistics segment aim to optimize revenue generation, thus potentially increasing future earnings.
  
• Divestiture of the Trust Codes Global business eliminated a $1.2 million operating loss, which should enhance future net margins and earnings.
  
• The company’s operational focus on the positive cash-generating PeriShip business and efforts to expand its customer base and optimize the sales strategy could significantly bolster future revenue and earnings.

VerifyMe Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VerifyMe's revenue will grow by 1.6% annually over the next 3 years.
• Analysts are not forecasting that VerifyMe will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate VerifyMe's profit margin will increase from -15.8% to the average US Electronic industry of 8.3% in 3 years.
• If VerifyMe's profit margin were to converge on the industry average, you could expect earnings to reach $2.1 million (and earnings per share of $0.14) by about April 2028, up from $-3.8 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 14.5x on those 2028 earnings, up from -2.0x today. This future PE is lower than the current PE for the US Electronic industry at 19.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

VerifyMe Future Earnings Per Share Growth

Risks

• The investments made in the Authentication segment did not yield desired returns, impacting company growth and leading to revenue decline, which could continue to affect overall profitability.
  
• The company's annual revenue decreased by 4% from 2023 to 2024, exacerbated by the loss of a major customer in the Precision Logistics segment, directly impacting net margins and earnings.
  
• The Logistics segment's customer shipments are stable but show a slight downward trend, highlighting potential risks to future revenue growth and market share.
  
• There is no guidance provided for 2025, reflecting uncertainty in market conditions and volatility, which could impact revenue predictions and investor confidence.
  
• Despite attempts to align costs and mitigate the loss of a significant customer, external market unpredictability and lack of concrete expansion strategies could hinder future earnings.

Valuation

• The analysts have a consensus price target of $1.625 for VerifyMe 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 $2.0, and the most bearish reporting a price target of just $1.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $25.4 million, earnings will come to $2.1 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 7.9%.
• Given the current share price of $0.63, the analyst price target of $1.62 is 61.1% 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.