Liquidity Services Stock: Moving In The Right Direction (NASDAQ:LQDT)

Introduction

Liquidity Services’s (NASDAQ:LQDT) stock is up ~13% year-to-date and ~14% since the middle of April specifically. As a result, the market price is starting to approach what I deem as a more appropriately priced stock. Fundamentally-speaking, however, I continue to think that LQDT can grow into a bigger business over time, particularly as they continue to improve their value proposition and their internal initiatives play out. But between the implicit growth, management and related margin risk, the stock doesn’t scream to me as an obvious buy today.

GovDeals: Overall Solid Results

GovDeals (GD) posted GMV of $186.2M in Q2, up ~$19M or ~11% from $167.9M posted in Q2 2023, although down ~$4M or ~3% from the ~$190M posted in Q1 2024. On a revenue basis, they reported sales of $18.4M in Q2, up ~$3M or ~22% from $15.1M posted in Q2 2023, and up $2.5M or ~16% from the ~$15.9M posted in Q1 2024. Correspondingly, their “segment direct profit” – which you can think of as gross profit – was $17.2M, up ~20% from $14.3M posted last year, and up ~14% from the $15.05M posted in Q1.

Let’s talk GMV. During the quarter, there was some inorganic contribution from their acquisition of Sierra Auctions on January 1st, so they contributed a full quarter. Total GMV or revenue from the acquisition wasn’t disclosed, so we don’t know precisely how much they contributed. ZoomInfo listed Sierra’s annual revenue at ~$15M or ~$3.5M quarterly, which seems at least roughly accurate to me per what they paid for them. Given their consignment nature, that implies GMV of ~$4M thereabouts given the mid-90% margins. Maybe GMV is closer to $3M or maybe it’s closer to $5M, but I think a low-to-mid-single-digit million dollar figure is reasonable. Assuming it’s $4M, that would imply a GMV growth rate of 8% on a year-over-year basis excluding Sierra, and down ~4% on a sequential basis. And indeed, they confirm that the year-over-year comparison saw organic growth.

Sequentially-speaking, the organic GMV decline is largely seasonally-driven as they confirm on prior calls. Although, in FY23, GMV went from ~$161M in Q1 to ~$168M in Q2, or growth of $7M, and then in FY22, they went from $157M to $180M, although 2022 benefitted from the acquisition of Bid4Assets, so that’s not comparable. But more consistent with their comments, in FY19, GD GMV went from ~$77M in Q1 2019 to ~$77M in Q2, or roughly flat sequentially. And in FY18, they went from ~$71M to ~$69M. So, while there is some merit to the seasonality argument, a mid-single-digit decline is still seemingly more than just seasonality, so I do think there was a step down in demand.

To this end, if we go back to Q1, for instance, GMV was up 18% versus the prior year (end of 2022) with the delta consisting of “increased personal property sales, including improved availability of used vehicles and increased take-rate pricing, and an increase in volume in our real estate category.” However, in Q2, they noted “increased availability of vehicles paired with a higher blended revenue take rate due to expansion of service offerings into new markets, while experiencing slower-than-anticipated real estate auction volume despite continued inroads in various jurisdictions.” Thus, it’s seemingly a reasonable explanation for one to conclude that Bid4Assets had a particularly weak quarter while the rest of their segment produced stable-to-improving GMV.

The Bid4Assets situation and trend is interesting – clearly, from the end of 2022 and into late 2023, GMV – most likely transaction count – grew, while now coming into Q1, the incremental trend was a decline. On the one hand, there is an argument to be made that one shouldn’t overweight quarterly results given the lumpy nature here. As one might expect, real estate (property sales) experiences more lumpiness given its high-dollar nature versus a used vehicle or versus smaller-dollar office equipment. And as such, one deferred (or accelerated) auction sale can have a relatively material impact on GMV/sales. On the other hand, however, the softness was seemingly fairly large and also, reported foreclosures increased in Q1 per this report.

Now, that’s very broad and partly non-representative data of Bid4Assets, so it’s not a perfect read-through. But zooming out, it’s worth pondering whether the imminent stabilization in macroeconomic conditions more broadly will lead to softness in Bid4Assets compared to the growth trend from 2022 to 2023. That is, we can see that in 2023, property foreclosures in the U.S. were higher than 2022 which were higher than 2021. This is something we’d largely expect too given the trends in macro conditions more broadly. Thus, consistent with the decline in foreclosures from 2010 to 2019, I think it’s reasonable to expect Bid4Assets, which lists foreclosed/government repossessed property for sale, could see a decline in supply. I.e., It’s very possible that Q2 reflects some of these dynamics, and that 12 months from now, we could see a headwind for this business.

On the other hand, it’s worth recalling the broader context for Bid4Assets. As I noted last time, one of the things that has happened post-COVID was that municipalities increased credit extensions which management discussed, allowing what would’ve been a foreclosure to be deferred. This thus reduced supply for Bid4Assets and thus, GMV. While I don’t see it happening today, there is a possibility that supply is “unlocked” from less debt-favorable policies that potentially offsets the aforementioned headwinds.

As for the rest of the segment, it’s obviously a good sign to see the growing GMV – or at least stable GMV on a seasonally-adjusted basis – which is also evident on a year-over-year basis. Vehicles are a sizable part of GMV, so the growth in supply here is clearly a positive, but there is a growth limit. Per what I think is happening which is that new vehicle supply is allowing municipalities to replace their current fleets by purchasing new vehicles which is thus resulting in more auction supply, this growth won’t continue forever – it’ll slow when new vehicle supply slows. Auto inventory in the U.S. still remains well below 2019 levels, and indeed, days inventory is lower too, so there is still some potential for growth here from today.

All in all, this is a business with a strong competitive position that should grow from overall supply growth – macro-adjusted – and new customers as more volumes and municipalities convert to online auctions – e.g., they just won a contract in New York. And this is going to be further complemented by the recent Sierra acquisition too. In the meantime though, Bid4Asset volume declines could pressure GMV, but adjusted for this, I’m comfortable assuming GovDeals grows.

Modeling-wise, Q3 is a seasonally high quarter, but they’re still guiding for year-over-year growth in Q3 from the “expansion of more full-service consignment offerings since the acquisition of Sierra”. Q2 GMV of ~$186M converts into full year GMV of ~$790M per 2019 seasonality (23.5% of full-year GMV). Segment direct profit margins ran at ~9.2% of GMV in Q2, which should remain largely consistent going forward given that Q2 included a full quarter of Sierra and they’ll remain consignment-focused. Should GMV grow mid-single-digits over time – below historical rates – that would translate into GMV of ~$870M by the end of 2026, and direct profit of ~$83M at 9.5% margins (assuming some marginal leverage). Macro impacts – e.g., Bid4Assets softening – could defer this, but structurally speaking, that growth rate is reasonably conservative to me given their history.

Retail Supply Chain Group: Outperforming

Retail Supply Chain Group (RSCG) posted GMV of $79.6M, up from $73.3M in the prior year or 8.6% higher, and up from $66.6M in Q4 or 19.5% higher. On a revenue basis, sales were $56.8M in Q2, up ~$3M or ~6% from $53.7M posted in Q2 2023, and up ~$13M or ~30% from the ~$43.7M posted in Q1 2024. Their segment direct profit was $17M, up ~2% from $16.7M posted last year, and up ~21% from the $14.1M posted in Q1.

There’s positive seasonality driving a lot of the sequential growth for RSCG, who for context, is used as an online platform for retailers and manufacturers – via category contracts – to liquidate excess consumer items to either other resellers or customers themselves, either listing and shipping the item themselves, or having LQDT do all of the transactional work. Q2 is the seasonal high point, evident in prior years too. E.g., In Q1 2023 to Q2 2023, GMV went from ~$65M to ~$73M, and during FY22, went from $53M to $59M. So, sequential growth of ~$13M in GMV isn’t terribly abnormal, but unlike GovDeals, RSCG is seemingly outperforming seasonally-adjusted sales growth, consistent with the high-single-digit year-over-year growth.

This conclusion would be consistent with their positive commentary on the call too. When referencing the year-over-year results, they noted that RSCG was driven by “an increase in low-touch consignment solutions and high volumes from purchase programs while continuing to experience a lower value product mix in certain full-service consignment and purchase programs.” They further expanded by saying, “RSCG has seen adoption from retail clients to sell from fulfillment centers, individual store locations, or individual warehouses.”

Unpacking this, I don’t get the sense that it’s macro-driven change. Perhaps I’m wrong, but I tend to contextualize the RSCG segment neither pro- nor counter-cyclical in any material way. When times are good, while more consumers buy more new items from the influx of cash, they also buy more items in general, both new and used. And conversely, when times are bad, consumers spend less money in total on both new and used items, but there’s an incremental trade-down to used goods to save money. The macro can impact them when it shifts the value proposition of new versus used goods in favor of one or the other, or when inventory grows as was the case in early 2023 when retailers broadly experienced excess inventory. While that’s behind us, perhaps there’s some general inventory excess by some of their clients resulting in slightly stronger growth, but I deem it unlikely.

What’s additionally favorable from a market perspective is that the value proposition here, a la that offered by GovDeals, is secularly attractive. Frankly, there’s not too many secular trends as durable as e-commerce as evidenced by the past few decades. But correspondingly, RSCG has benefitted from this trend, and I see no fundamental reason LQDT’s online marketplaces for used goods would not participate in that trend going forward. Indeed, if we look at their GMV history over time, or at least pre-COVID to get a better macro-adjusted read, it’s been up-and-to-the-right at a double-digit pace.

Contributing to this growth, however, has not just been a natural shift in shopping preferences, but value proposition improvements on their end to capture more buyers and more sellers, which is what we’re witnessing today per the earlier comments. The team is adding new capabilities like self-service (sell-in-place) options for sellers, which of course naturally improves their offering for sellers to get more out of their excess inventory, so I’m not surprised to see some growth here (although some of it is macro-driven as broader conditions stabilize and retailers decide to use fewer of LQDT’s footprint). They’ve made similar improvements in the past, like for instance, their initiative to expand their DTC offering by designing AllSurplus Deals. Offering improvements like this will continue going forward, which should support further growth over time.

The only angle about RSCG that concerns me more than GovDeals is competitive risk, although it’s clear they’re not losing market share today per the aforementioned comments about their offering improvements. In fact, management’s seeing more consolidation today – per the call:

“And the other thing I would just add, and we’ve talked about in the past, there’s been a period of less attractive product mix in retail in 2024 versus the prior year period. There are lots of reasons for that. But I would tell you that we’re seeing signs of consolidation in the retail industry as it relates to in the liquidation category. A number of new entrants that came in to try to buy and resell retail goods during 2021, 2022, have encountered operational and financial difficulties resulting in nonperformance and even closures of these players, which has been a sort of recalibration for these top 50 retailers and who they want to interact with.”

Still, versus GovDeals, the field is more fragmented with quality competitors such as B-Stock. But there are some soft advantages as I do think scale begets more scale. For one, larger marketplaces like LQDT have better recovery rates given their larger buyer base. And then for two, larger distribution/facility footprints like LQDT’s offer national retailers a singular liquidation outlet for their national flow of goods. I.e., If I have locations in multiple states, instead of contracting with multiple vendors for each territory, I can go through one with LQDT. So, there’s a logical argument to some scale advantages.

Switching gears, what you’ll notice is that their gross margins have declined. In Q2, they posted segment gross profit-to-GMV of 21.3%, down from 22.8% in last year’s Q2, but up marginally from the 21.1% posted in Q1. I’m actually a little bit surprised by the sequential growth considering the strength in self-service (low-touch consignment) sales. On a year-over-year basis, the decline makes sense – as more customers use their self-service capabilities by selling more of their goods from their own locations, LQDT naturally charges less – i.e., captures a lower take rate – since there’s less service involved on their end, thus earning fewer revenue dollars per dollar of GMV. Furthermore, they’re still battling the headwind of lower-value mix – i.e., selling 10 $2 goods instead of 2 $10 goods – which also reduces margins. So, perhaps the growth was just seasonally-driven, but either way, it’s a good sign.

All in all, they’re guiding for Q3 “volumes similar to this past fiscal second quarter’s record retail GMV,” and AllSurplus Deals “to sustain a strong year-over-year growth rate in this coming quarter.” Furthermore, they’re take is that margins could improve sequentially as they continue “to improve, selling through the backlog of lower-value product with improved operational efficiency and buyer demand generation.”

So, these are good signs. Generally, there’s a seasonal step down for RSCG from the highs of Q2 as evidenced by the 2019 period and management commentary, suggesting that their internal initiatives called out earlier are continuing to contribute, but inconsistent with the sequential trend, they’re expecting the low-value mix shift headwinds to abate.

Over time, I see RSCG growing at what I believe could be mid-to-high-single-digit GMV growth. As the low-value product mix shift headwinds shift – although the mix shift to low-touch self-service will continue – segment gross profit margins shouldn’t decline at a rapid pace, and may actually improve versus Q2. Assuming 6% GMV growth, today’s GMV of ~$80M, which translates into an annual GMV of ~$310M, would amount to ~$348M by the end of 2026. Should the mix of goods remain relatively steady, we should see segment gross profit margins around 20-21% – call it, 20.5% – implying a segment gross profit of ~$71M.

Capital Assets Group & Machinio: Performing Well

Capital Assets Group (CAG) posted GMV of $53.5M, up from $41.5M in the prior year or 29% higher, and up from $48.9M in Q4 or 9.4% higher. On a revenue basis, sales were $12.3M in Q2, up ~$3M or ~31% from $9.4M posted in Q2 2023, and up $4.5M or ~58% from the ~$7.8M posted in Q1 2024. Their segment direct profit was $9.2M, up ~31% from $7M posted last year, and up ~33% from the $6.9M posted in Q1.

Considering the seasonality of their CAG segment, this is a notably strong performance as Q2 is generally a seasonally low quarter for them. For instance, in FY23 Q1 to Q2, they went from ~$45M to ~$42M; in FY22, they went from $50M to $37.5M; and in FY19, they went from ~$46M to ~$36M. So, for them to organically post nearly 10% sequential growth is saying something. Indeed, from the call, it’s sounding like they scooped up some sizable deals:

“Our CAG segment continues to grow its recurring heavy equipment seller base at a record pace and [ Greets ] heavy equipment fleet GMV and by over 30% year-over-year during the quarter. CAG’s all surplus online marketplace is the global market maker of choice for industrial sellers in all regions of the world and in all industry verticals.

For example, during the quarter, our CAG segment completed several high-value transactions in our automotive and energy categories, reflecting how corporate clients are using our marketplace to monetize assets amidst a changing dynamic growth in many sectors of the economy.”

However, as was appropriately noted on the call too, there were some transaction deferrals from Q1 to Q2, so Q2 is slightly elevated versus a normalized quarter. But I wouldn’t go so far as to say that if one excluded the transactions from Q2, that GMV would be lower on a seasonally-adjusted basis. Indeed, if we look at Q1, which was implicitly suppressed from the aforementioned deferrals, they still posted 9% year-over-year GMV growth.

Unpacking this, similar to RSCG, I can’t quite tell if the macro is a headwind or tailwind on a net basis. Again, on the one hand, when times are tougher, more business will be selling equipment, so supply increases and improves the value proposition. But on the other hand, when times are good, LQDT should see more buyers enter the marketplace to buy equipment – e.g., small mom-and-pop construction companies.

My sense, however, is that there are some macro-tailwinds because I can’t really justify backwards. For instance, there’s nothing really changing in the value proposition to drive material incremental growth. And while we could potentially argue that their CAG segment is taking some market share – which they could – we can also see that RB Global (RBA) posted 20% year-over-year GTV growth – equivalent to GMV – in their “Commercial construction and transportation” category (adjusted for the IAA acquisition). So, perhaps there are some macro tailwinds today that won’t continue.

Now, Machinio is probably taking some share. Machinio’s sales of ~$4M in the quarter were up 21% versus the $3.3M posted in Q2 last year, and up ~3% from the ~$3.9M posted in Q1. Perhaps there are some market-related tailwinds a la what CAG is seeing, but we also know management has recently (later 2023) opened a regional sales office in China for Machinio, which we see is naturally driving incremental business – from the Q1 call:

“So what we did is we took advantage of our physical presence there, and added a regional sales organization to extend the Machinio platform into those markets, and we sell direct. …

The reality is that there is a big interest in being able to move equipment — used equipment outside of the region, and that’s tapping into Machinio’s presence throughout the U.S., North America, Europe, a lot of buyers. And we’re seeing good adoption of the solution, albeit it’s a small base that we’re starting with. But we had some revenue already on Machinio platform with subscribers before we opened up a sales presence there.”

Over time, similar to the other 2 segments, I don’t really see where either of these offerings go backwards, structurally speaking, from a market perspective. Perhaps a positively turning macro environment does slow GMV growth or result in a modest pullback of supply and spend, but as evidenced by RB Global’s and Machinio’s history, and Machinio’s expansion in Asia, there’s room to grow holding aside general GDP growth over time. Consistent with this, per their guide for CAG and Machinio, they’re not expecting any noticeable slowdown in Q3.

Very simply, taking CAG’s $53.5M GMV in Q2 and applying 2019 seasonality (23.5% of sales), that implies an annualized GMV of ~$228M. Should that grow at, say, 5% over time, that gives me ~$251M in GMV by 2026. For Machinio, seasonality is de minimis per my understanding, so we can think about the $4M translating into ~$16M in annual sales. Assuming 10% growth – given their size and aforementioned initiative – that amounts to ~$20M in FY26 sales.

Margin-wise, CAG’s gross margins (to GMV) went from 17% last year to 17.3% this year, and saw growth from 14.2% posted in Q1. Sequentially speaking, maybe there’s some fixed cost leverage per what they expense in their segment COGS, but we know this isn’t huge. What drove the bulk of the growth were the aforementioned large transactions as these are more profitable than smaller ones. Incidentally, this was why Q1’s margins were below the prior year’s Q1 as that period included larger, higher-margin transactions as well.

Given Q2’s mix abnormality and the implicit fluctuations in margins quarter-to-quarter as a result, based on their history of posting 14-17% margins, I tend to think 15.5% margins are reasonable, to split it down the middle. So, as CAG (assumptively) scales to ~$228M in annual GMV, segment gross profit of ~$35M is reasonable to me. For Machinio, we can think about them posting 95% segment gross profit margins given the de minimis variability they experience, implying $19M in segment gross profit for them.

OpEx (Margins): Should See Modest Leverage

The aforementioned segment analysis bridges our understanding down to the gross profit level. And for context, gross margin (to GMV) at a consolidated level came in at 14.8% in Q2, up from 14.5% posted in Q2 2023, and up from 13% posted in Q1 2024. At the operating level, EBITDA margins (as a percentage of GMV) were 3.8% in Q2, up from 3.5% in Q2 last year, and up from 2.4% in Q1.

Breaking this out then, sequential gross margin growth of 180 bps and EBITDA margin growth of 140 bps implies some opex deleverage since last quarter, which consists of Tech & Ops, S&M, and G&A spend. On a dollar-basis, adjusted opex – for which I’m just taking gross profit minus adjusted EBITDA – increased ~$4M year-over-year from $31M last year to ~$35M today, and ~$2.5M sequentially from the $32.5M posted in Q1.

Per the 10-Q, considering that both GAAP G&A and T&O were both up just marginally year-over-year with G&A relatively flat while T&O grew a little more sequentially, we can more or less clearly see that the bulk of the opex growth – and respective opex margin deleverage – in both comparisons came from their S&M category.

Sequentially speaking, this makes sense. For one, the Sierra Auction acquisition clearly increases the sequential opex changes, and was likely dilutive from an EBITDA margin perspective. While I’d assume the take rates are similar to legacy GovDeals, with materially less scale, there should be inherently less opex leverage. Then for two, particularly for the year-over-year change and partly for the sequential change, some of this cost growth stems from their growth initiatives and related investments. From the Q1 2024 call, they talked about adding staff over the prior 2 quarters from their Asia-based office for Machinio, while also making investments into their tech stack across different segments of the business:

“So we’re growing that business really well and adding some capacity, Gary, that will provide leverage in the second half there. We spent a decent amount of money in time preparing GovDeals deals to be upgraded after essentially 2 decades and have some now AI-driven marketing capabilities within GovDeals, which is a $700 million GMV marketplace. So if we can just bump recovery by 10%, very high payoff in the second half of the year. So we did step up a little bit there.”

And they further confirmed these investments – and respective costs – on the Q2 call:

“And we’ve got a great CTO and product team, and we’ve identified and made some unbudgeted IT hires to pull forward some key projects that are going to help this business and meet current demand for many of our clients. For example, in the GovDeals marketplace, we’re rolling out 4-level taxonomy in key categories such as transportation assets.”

Consistent with their comments, it makes logical sense to me that a lot of these are pull-forward costs – i.e., costs that really haven’t been leveraged yet. For instance, most clearly, the Asia-based office that they’re building for Machinio requires a good amount of upfront staffing and productivity/workflow efficiencies to be worked out before reaching normalized efficiency. Considering that they just ramped this office 1-2 quarters ago, it’s hard to think there’s not a good amount of untapped productivity to capture here, and indeed, they think there’ll be a lot of leverage in the back half of FY24.

Zooming out for a second, one constant concern is that at some point down the line, management wrecks profitability via large near-term investments a la Liquidity One in 2016, and of course, that could happen. But more broadly, I do think there’s a natural level of “accelerated investment” that will always more or less be in the model. As evidenced by today’s and historical investments, there’s likely a long list of projects they haven’t addressed yet to improve the platform, and over the coming years, my belief is that profitability will continually be suppressed by these projects/investments, which I think are rational to pursue, by the way, for competitive reasons.

With that in mind, someone could take today’s adjusted opex profile of ~$14oM on an annualized basis – and the respective EBITDA-to-GMV margins of 3.8% – and think they should grow as LQDT adds GMV going forward with necessarily needing more costs given the upfront investment in today’s opex. I do think that’s partly true, and am indeed modeling some opex leverage from this. But while I do also think there’s inherent operating leverage such that as GMV grows, centralized opex like G&A and T&O don’t have to scale hugely, considering the GMV growth I’m modeling, I think it’s appropriate to assume some structural level of ongoing, upfront investment remains in the cost profile as they move forward.

Simplistically, on 2026 numbers, should consolidated GMV reach $1.466B, that’s ~$367M of GMV per quarter, which compares to the ~$319M posted in Q2 when they posted an opex margin of ~11%. I do think that on a normalized basis, minus any new growth initiatives or projects, today’s opex margin could be something like 10.5% once we account for the inherent leverage that should be captured on today’s opex profile per the aforementioned investments. But I’m not modeling too much beyond that over time as I think there’ll continuously be a structural level of investment driving a higher opex-to-GMV margin – I’m assuming 10.5%. I could be entirely wrong and too conservative here, but I find it reasonable to assume some structural level of continuous investment.

Valuation: Reasonably Priced

As noted earlier, they acquired Sierra Auctions for ~$13.8M in Q2 (January 1st). Sierra was a competitor to their GovDeals business, operating as a government-focused online auction in the Arizona region, allowing municipalities (and other organizations) to auction off vehicles, equipment, and other items. Strategically then, it makes sense for LQDT – it grows their base on municipal customers which strengthens their network effect by increasing supply which thus boosts the value to buyers. Financially, though, they won’t disclose any metrics around the business, so it’s hard to know precisely what was contributed or the multiple paid – all they note was that Sierra’s “accretive”, but I’m not sure what they mean by that.

CapEx remains consistent with my expectations of running around ~$2M per quarter YTD. Interestingly, management decided to repurchase quite a bit of stock in Q2, spending ~$8M during the quarter repurchasing ~750K shares total. For a business producing around ~$20-30M in free-cash-flow annually, this is a good amount of money spent, although they do have a very large cash balance to use. Either way, though, this too is consistent with my expectation for them to reallocate money to buybacks over time.

At today’s price of $19.3/share with 30.482M basic S/O, that’s a ~$588M market cap. Net of $117M of cash (including $8.4M of short-term investments) and $0 of total debt, that’s an EV of ~$471M. Per what I’ve been discussed earlier, think the following FY26 modeling inputs are reasonable across the segments:

• GovDeals GMV/segment profit: $870M/$83M (9.5% margin).

• RSCG GMV/segment profit: $348M/$71M (~20% margin).

• CAG GMV/segment profit: $228M/$35M (15.5% margin).

• Machinio revenue/segment profit: $20M/$19M (95% margin).

Assuming an adjusted opex margin of 10.5%, that implies $154M in opex, or ~$54 in adjusted EBITDA when subtracted from the gross profit assumptions. Assuming D&A at 1% of GMV ($14.5M) as this should be leveraged, 25% tax rate, capex at 0.4% of GMV (~$6M), and SBC at 1% of GMV (~$14.5M), that ultimately gets me to net income of $18.8M and FCF of ~$27.3M (D&A should be greater than capex thanks to acquisition amortization).

I tend to think that an FCF multiple between 20-25x is reasonable, leaning a little more on the aggressive side. Assuming 22.5x, that implies a market cap of ~$615M by FY26, or ~$20/share – assuming cash flow of ~$20M annually is reinvested into buybacks in 2025 and 2026 at $20/share, that then implies a share price of ~$22/share, or around $19/share on a PV basis, not far off from today’s price. As such, I don’t personally get overly excited about the prospects for outperformance at today’s price.

Conclusion

Between the risks in the company and prospects for growth over time, while I do think the latter will ultimately outweigh the former and drive a bigger business for LQDT, I’m not sure at $19.3/share that today’s price really amounts to a terrific risk/reward. That is, I can envision some scenarios where LQDT grows from here to justify a higher price, but I can always envision scenarios where they encounter a temporary decline in sales. Thus, I’m staying on the sidelines for now.