Following the company’s second quarter results, Haywood analyst Pardeep Sangha has raised his price target on Cortex Business Solutions (TSXV:CBX).
On Tuesday, Cortex reported its Q2, 2017 results. The company lost $196,385 on revenue of $2.72-million, a topline that was up six per cent over the same period last year.
“With the restructuring and internal transformation behind us, the team continues to move forward with strong sales momentum with new and existing customers,” said CEO Joel Leetzow. “The sales organization was able to close six buyers in the quarter, and, to add to this momentum, our delivery organization was able to move one of these buyers through the integration process before the end of January, allowing them to start transacting in the quarter. In addition, there are lots of opportunities in our sales pipeline. We have more customers willing to work with Cortex on case studies to share their success stories. This has helped other buying organizations understand the benefits that can be achieved through increased automation levels, visibility into the monthly operational expenses and improved efficiencies.”
Sangha notes that Cortex’s second quarter bested the street’s expectations. He says early signs of growth are beginning to show at the firm, and he thinks the company has a large near-term opportunity that is paving the road to a $20-million revenue run rate by fiscal 2020.
“We believe Cortex is significantly undervalued,” says Sangha. “Cortex currently trades at 1.9x EV/Revenue multiple of our CY17 estimates compared to its peer group trading at 4.7x EV/Revenue of consensus CY17 estimates. Our target price of $4.50 is based on applying a 3.4x EV/Revenue multiple of our FY17 forecast of $11.0M, or 2.8x multiple to our FY18 revenue forecast of $13.6M.”
In a research update to clients today, Sangha maintained his “Buy” rating, but raised his one-year price target on the stock from $4.00 to $4.50, implying a return of 55.2 per cent at the time of publication.
Sangha thinks Cortex will generate EBITDA of $300,000 on revenue of $11.0-million in fiscal 2017. He expects these numbers will improve to EBITDA of $1.2-milion on a topline of $13.6-million the following year.