Is the Clipper Logistics share price set to explode?

Chart showing an upwards trend, possibly in the FTSE 100

It’s been an exceptional year for the Clipper Logistics (LSE:CLG) share price. The e-commerce stock has thrived throughout the pandemic as more consumers turned to online shopping solutions during lockdown. And according to its latest results, this performance doesn’t appear to be slowing down, even now that restrictions are over. So, should I be adding this business to my portfolio? Let’s take a look.

The surging Clipper Logistics share price

As a quick reminder, Clipper Logistics provides solutions for online businesses as well as warehousing space. One of the greatest challenges in running an online store that sells physical products is establishing a distribution network. And that’s a problem this firm has solved, which in turn has attracted nearly 60 corporate customers, including the likes of ASOS, British American Tobacco, and Halfords.

Last month, the group released its 2021 FY results, which go from April to April. The large shift toward online spending throughout the pandemic enabled Clipper Logistics to expand its revenues by 39%, reaching £696.2m. This, in turn, allowed reported earnings before interest and taxes (EBIT) to jump by 22.5% to £39.8m. These results actually missed guidance slightly, and so the muted response of the Clipper Logistics share price when the report was released isn’t entirely surprising.

However, what I find encouraging is that these pandemic-boosted numbers may get even higher moving forward. Why? Because the firm signed new contracts with John Lewis, Life Style Sports, and JD Sports. And consequently, management has raised guidance for both its 2022 and 2023 fiscal years. Revenues are now expected to come in at £775m and £867.4m, respectively, despite bricks-and-mortar stores having reopened their doors.

A rich valuation adds investment risk

The potential growth on the horizon has a large number of investors excited. That seems clear when looking at this stock’s valuation. The rapid rise in the Clipper Logistics share price has pushed the price-to-earnings ratio well above 40, meaning the stock is being driven by performance expectations over the next few years.

Suppose Clipper Logistics fails to meet the current analyst forecast for revenues or profits? In that scenario, I think it’s likely to see its share price take a considerable hit. And since the firm has yet to report any non-pandemic-influenced figures this year, it’s possible that revenue growth could slow over the short term.

The Clipper Logistics share price has its risks

The bottom line

I can’t deny that the Clipper Logistics share price looks expensive. However, I believe this premium may be worth me paying. Research group eMarketer has estimated that online shopping could represent up to 39% of retail spending by 2025. If this is accurate, then the need for Clipper Logistics services are more than likely to rise, creating numerous growth opportunities over the long term.

Therefore, despite the risks of a potential short-term slowdown, I believe the share price is currently on track to explode over the next few years. So, I am considering it as a potential addition to my portfolio.

The post Is the Clipper Logistics share price set to explode? appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Clipper Logistics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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