Kinaxis isn’t cheap but it is a buy, says Canaccord Genuity

Shares of Kinaxis (Kinaxis Stock Quote, Chart, News: TSX:KXS) won’t be showing up in the most stringent of value investor’s radar, but Canaccord Genuity analyst Robert Young says the stock is still a buy at these levels.

On Tuesday, Yesterday, Kinaxis reported its Q4 and fiscal 2016 results. In the fourth quarter, the company posted Adjusted EBITDA of $6.4-million on revenue of $30.3-million, a topline that was up 25 per cent over the same period a year earlier.

“Two thousand sixteen was another year of strong revenue and new customer growth. We delivered solid bottom-line results as we continued to make strategic investments to scale our business,” said CEO John Sicard. “The world’s largest companies have increasingly recognized that concurrent planning represents the future of effective supply chain management. Through RapidResponse, we are delivering on this promise and enabling our customers to pro-actively react to change. Our partner relationships continue to progress well and have supported a number of key wins in 2016. Our partners work to improve operational and financial performance for their clients by utilizing RapidResponse’s capabilities. With a strong platform in place, we enter 2017 in a great position to leverage our technology, customer relationships and strategic partners to continue to produce solid results.”

Young notes that Kinaxis is currently extremely confident in its pipeline prospects, where it sees several large, mature opportunities. The analyst thinks the company is “at the foothills of a big opportunity”, in part because it helps its clients deliver a strong return on investment, which gives it pricing power and stickiness.

“Kinaxis is not cheap, but we recommend the shares given the company’s strong combination of forecast revenue growth and EBITDA margin which we believe supports a premium valuation,” says Young. “Great companies don’t let you in easy…Kinaxis trades at ~9x 2017E EV/Sales and 36x EV/2017E EBITDA, which is a premium to the peer average for larger SCM SaaS Vendors of 4.3x and 22.0x.”

In a research update to clients today, Young maintained his “Buy” rating on Kinaxis but raised his one-year price target on the stock from $74.00 to $80.00. Shares of the company closed today up 2.4 per cent to $75.62.

Young thinks Kinaxis will post EBITDA of (US) $36.4-million on revenue of $144.5-million in fiscal 2017. He thinks these numbers will improve to EBITDA of $47.4-million on a topline of $190.1-million the following year.