Absolute Software is undervalued, says Paradigm Capital

Absolute Software (Absolute Software Stock Quote, Chart, News: TSX:ABT) has set the foundation for strong growth, says Paradigm Capital analyst Kevin Krishnaratne.

In a research report to clients today, Krishnaratne initiated coverage of Absolute Software with a “Buy” rating and a one-year target of $10.00 implying a return of 65.5 per cent at the time of publication.

Krishnaratne says Absolute has strong cash flow, and likes the fact that 95 per cent of its sales are recurring. He says new product launches and a sharpened focus on capitalizing on information security trends should drive revenue. He expects a rebound in results will begin to happen in the second half of fiscal 2016 and will accelerate the following year.

“Absolute Software is a uniquely positioned global provider of information security services for endpoint devices,” says Krishnaratne. “Management has executed several initiatives over the past year aimed at leveraging Absolute’s leadership position in hardware and device tracking to enable a richer set of value-added software services focused on the large and growing information security market. The opportunity for Absolute is large, as 500+ million devices have been embedded with its technology but only ~1% are enabled with its services to date.”

The Paradigm analyst notes that ABT is cheap compared to its peers, currently trading at an EV/EBITDA multiple of ~8.0x based on CY16e against the peer average of Information Security and Canadian Software comparables, which trades at 12.6x.

Shares of Absolute Software closed today up 2.9 per cent to $6.38.