Proactive Cold Chain Transition Will Drive Long Term Margin Expansion And Strengthen Earnings Potential

Catalysts

About VerifyMe

VerifyMe provides precision logistics and proactive cold chain shipping solutions for small and medium sized businesses.

What are the underlying business or industry changes driving this perspective?

• Transition to a new proactive shipping partner that is highly focused on small and medium sized shippers in temperature sensitive logistics, which is expected to support sustained volume growth and higher quality revenue as customers fully transition and new accounts are onboarded, potentially boosting revenue and operating leverage.
• Demonstrated gross margin expansion from 33 percent to 41 percent over three quarters, supported by structurally better supplier pricing and operational efficiencies, indicates improvement in unit economics that can enhance net margins if volumes recover.
• Growing demand for reliable cold chain solutions in e commerce and healthcare shipping aligns directly with VerifyMe strengths in precision logistics, supporting potential organic growth and a mix shift toward higher value services.
• A leaner cost structure after divesting non core Trust Codes and reducing operating expenses from 2.5 million to 1.7 million positions the company to potentially convert incremental revenue into improved operating income and free cash flow if the transition period normalizes.
• A debt free balance sheet with 4.0 million of cash, positive cash flow from operations, and interest income from the Zen Credit note provides strategic flexibility to evaluate bolt on or transformative M&A that could scale revenue and impact EBITDA margins.

Assumptions

This narrative explores a more optimistic perspective on VerifyMe compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming VerifyMe's revenue will decrease by 18.6% annually over the next 3 years.
• The bullish 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 -21.8% to the average US Electronic industry of 8.8% in 3 years.
• If VerifyMe's profit margin were to converge on the industry average, you could expect earnings to reach $1.0 million (and earnings per share of $0.08) by about January 2029, up from $-4.7 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.9x on those 2029 earnings, up from -1.8x today. This future PE is lower than the current PE for the US Electronic industry at 24.7x.
• The bullish analysts expect the number of shares outstanding to grow by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The prolonged transition away from the long standing Proactive shipping partner creates structural customer churn risk. Management explicitly acknowledges that some existing customers will never transition to the new partner and that peak season capacity constraints are delaying decisions, which could depress long term shipping volumes and revenue.
• The inability to size or disclose the revenue contribution from the Proactive business that effectively ended with the prior shipping partner, combined with management's reluctance to provide 2026 guidance, highlights limited visibility into future volumes. This could result in weaker than expected revenue recovery and more volatile earnings.
• The $3.9 million impairment of goodwill and PeriShip related intangibles, coming just a year after a $1.9 million impairment in the Authentication segment, signals that prior growth investments have been written down twice in quick succession. This suggests structural challenges in sustaining economic returns that may cap long term net margins and depress earnings.
• Reliance on a highly concentrated logistics ecosystem, including a primary Proactive shipping supplier whose strategic decisions forced a rapid shift in partners, exposes the company to future counterpart driven disruptions that could pressure gross margins, raise operating costs and destabilize revenue if supplier economics or technology requirements change again.
• The strategy of pursuing potentially transformative M&A to address subscale size introduces integration and execution risk in a low visibility operating environment. If acquired assets fail to be immediately accretive or synergies do not materialize, the company could dilute shareholders, erode cash reserves and weigh on future net margins and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for VerifyMe is $1.5, which represents up to two standard deviations above the consensus price target of $1.25. This valuation is based on what can be assumed as the expectations of VerifyMe's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.5, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $11.7 million, earnings will come to $1.0 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $0.67, the analyst price target of $1.5 is 55.0% 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.