SPS Commerce, Inc. (SPSC): A Bull Case Theory

We came across a bullish thesis on SPS Commerce, Inc. on Heavy Moat Investments’s Substack. In this article, we will summarize the bulls’ thesis on SPSC. SPS Commerce, Inc.'s share was trading at $89.84 as of December 17th. SPSC’s trailing P/E was 40.11 according to Yahoo Finance.

SPS Commerce, Inc. provides cloud-based supply chain management solutions in the United States. For more than a decade, SPSC was viewed as a textbook small-cap compounder, consistently growing revenue, expanding margins, and maintaining high customer retention, which justified a premium valuation that often exceeded 40x EBITDA. That perception changed abruptly after the stock fell roughly 60%, forcing investors to reassess whether the company is merely out of favor or structurally impaired.

At its core, SPS operates a cloud-based retail supply chain platform that connects retailers, suppliers, and logistics providers, enabling standardized and automated document exchange through EDI and other protocols. While EDI is often labeled antiquated and vulnerable to API-first disruption, SPS mitigates this risk by remaining protocol-agnostic and embedding itself deeply into established workflows. Retailers demand strict compliance, suppliers need access without custom integrations, and SPS acts as the critical intermediary, resulting in a sticky, subscription-based model with low churn and recurring revenue, which historically supported its premium multiple.

The company’s strategic misstep came with the early-2025 acquisition of Carbon6, a costly push into the Amazon seller ecosystem. Although the deal was framed as a way to become essential infrastructure for Amazon sellers, subsequent changes to Amazon’s marketplace rules undermined the economics and highlighted a key asymmetry: Amazon does not need SPS, while SPS depended on Amazon’s stability. While the acquisition is not balance-sheet threatening, it raises concerns about management judgment and potential impairments.

Fundamentally, SPS remains a solid business, having delivered a 19% revenue CAGR over five years, modest margin expansion, and a clean balance sheet with net cash. However, its valuation has compressed sharply to around 12x EV/EBITDA. The recent involvement of activist investor Anson, pushing for a sale to unlock value, adds another layer of uncertainty, particularly for long-term investors who previously viewed SPS as a durable growth compounder rather than a near-term value realization story.

Previously, we covered a bullish thesis on Salesforce, Inc. (CRM) by Quality Equities in April 2025, which highlighted the company’s resilient subscription-based model, AI-driven growth initiatives, expanding margins, and a disconnect between market-implied and intrinsic free cash flow growth. The company's stock price has appreciated by approximately 4.40% since our coverage. This is because the thesis partially played out. Heavy Moat Investments shares a similar but emphasizes on valuation compression and execution risk following a sharp derating.

SPS Commerce, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held SPSC at the end of the third quarter which was 34 in the previous quarter. While we acknowledge the potential of SPSC as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.