What is huge, inefficient, and ripe for enormous disruption over the next decade?
The world’s supply chain.
In 2018, U.S. companies spent over $1.6 TRILLION on logistics. That equates to about 8% of GDP.
This huge piece of the economy is riddled with inefficiencies…
U.S. hospitals wasted $26 billion on unnecessary supply chain spending in 2019. In India, supply chain inefficiencies cost companies $65 billion per year. Meanwhile, the bulk materials industry wastes about $43 billion each year in its supply chain.
Why these huge numbers?
Because across the globe, more than 40% of companies are using antiquated, physical supply chains to run modern, digital companies.
That’s all changing today… with the global emergence of Supply Chain 4.0.
Supply Chain 4.0 is the next-generation of supply chains — a completely digital, internet-connected supply chain where robots are used for fulfillment, tracking sensors are placed on every item, and analytics are used to enhance inventory management. Everything is automated. Everything is digital. And everything is more efficient.
Over the next decade, the emergence of Supply Chain 4.0 will disrupt the multi-trillion-dollar global supply chain market, and net investors in this megatrend explosive returns.
Today, we will show you how to play the Supply Chain 4.0 boom, by buying a small-cap stock which is turning into the software backbone of these next-generation supply chains. If all goes right, this small stock could rise by 1,100%.
The “Language” Backbone of Next-Generation Digital Supply Chains
Up more than 1,000% over the past decade, red-hot SPS Commerce (NASDAQ:SPSC) stock is ready to explode even higher over the next decade thanks to the Supply Chain 4.0 evolution.
SPS Commerce is a $3 billion supplier of end-to-end, cloud-hosted supply chain management software. At the center of this software is something called EDI — short for electronic data interchange — which essentially serves as a common digital language across the world’s complex supply chain.
The global retail network has countless suppliers, countless distributors, and countless manufacturers. Because there aren’t many exclusive deals, everyone works with everyone. And because there’s so many enterprise software offerings in circulation, not everyone uses the same software, which has in the past left room for significant communication inconsistencies throughout the supply chain.
In steps SPS Commerce’s EDI platform, which enables different players in the retail network using different software, to communicate through a common digital language which all software platforms understand.
In so doing, SPS Commerce eliminates communication inconsistencies, streamlines the supply chain, and makes everything go more smoothly.
It’s also why SPS Commerce has grown its customer base by 150% and its revenues by 525% since 2010.
But this company is still in the beginning of its journey…
The Supply Chain 4.0 evolution gives SPS Commerce’s cloud EDI platform the opportunity to turn into the ubiquitous communication backbone of the world’s digital supply chain.
There are roughly 200,000 retailers, suppliers, grocers, distributors, and logistics firms that could use SPS Commerce’s cloud platform as they migrate to Supply Chain 4.0.
SPS Commerce has just 31,000 customers today.
Assuming SPS Commerce leverages Supply Chain 4.0 tailwinds to sustain its historically normal growth trajectory (~5% customer growth per year, double-digit revenue growth every year, and steady margin expansion), then SPS Commerce could grow profits by nearly 650% to $250 million by 2030.
But… even that understates SPS Commerce’s growth potential.
SPS Commerce’s growth trajectory should improve over the next decade, thanks to three factors:
- Covid-19 has permanently accelerated the digital supply chain transformation, making digital the new normal.
- The shift towards omni-channel commerce has increased retail supply chain complexity, thereby intensifying the need for a common-language EDI platform.
- The bigger SPS Commerce gets, the more data the company will have, and the better data-enabled supply chain software management solutions the company can create.
As such, SPS Commerce’s growth trajectory in the 2020s will actually look more like 10%+ customer growth per year and 20%+ revenue growth per year. Assuming so, then SPS Commerce could grow profits by nearly 3,000% to $1 billion by 2030.
Cloud software stocks like SPS Commerce normally trade at 35x earnings. That multiple implies a potential future valuation for SPS Commerce of $35 BILLION — equating to 1,100% upside in SPS Commerce stock.
In other words, SPS Commerce is a stock already up 10X over the past decade, which will repeat that performance and then some over the next decade. That’s a rare feat. Rare enough that you should consider buying SPS Commerce stock today.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.