Absolute Software’s Q2 was soft but the stock is still a buy, says Cormark

A challenging second quarter has Cormark analyst Richard Tse feeling a little less bullish about Absolute Software (Absolute Software Stock Quote, Chart, News: TSX:ABT), but the analyst still believes the stock offers compelling value.

Yesterday, Absolute reported its Q2, 2016 results. The company earned (U.S.) $8.74-million on revenue of $21-million, a 4 per cent topline gain over the same period last year.

“In the second quarter, we continued to make measurable progress against our strategic initiatives, resulting in positive growth in ACV, revenue and our sales pipeline,” said CEO Geoff Haydon. “As we move into the second half of this fiscal year, I am confident the changes we have made to the business will continue to strengthen our results. Our sales organization is on a trajectory of improved performance, our DDS offering will be enriched with new enterprise features, and the results of our branding and demand generation efforts will continue to materialize. Finally, we are facing a larger expiring contract renewal opportunity.”

Tse says Absolute’s results were slight misses against his top and bottom line expectation. He says Absolute has always been plagued by an inconsistent track record when it comes to execution, but feels that the changes the company has implemented over the past year can get it off the rollercoaster. He also points out there were positives that bold well for the immediate future, including a 98% increase in its sales pipeline, a 134% increase in lead generations, and the fact that 16% of Absolute’s sales force is exceeding their quotas.

“Absolute’s Q2 results are challenging when it comes to calling this stock – soft results paired with an attractive valuation and hope from Management for a stronger H2,” says Tse. That’s really been the story for Absolute for some time as the company continues to hang out the prospect that growth is on the way; yet, the reported numbers have shown limited momentum in this regard. In our view, we agree with many of the changes made by the company over the past year when it comes to honing its product line, targeting new customers while increasing average contract values (AVC). To do that, we’ve seen changes in Management and more importantly in the company’s sales force/structure and how it engages customers.”

In a research update to clients today, Tse maintained his “Buy” rating but lowered his one-year price target from $11.00 to $10.00.