A strong recent run in shares of Absolute Software (TSX:ABT) has Paradigm Capital analyst Kevin Krishnaratne thinking the stock is fully valued.
In a research update to clients today, Krishnaratne lowered his rating on Absolute from “Buy” to “Hold”. The analyst also cut his one-year price target on the stock from $9.00 to $8.50, implying a return of 10 per cent, including dividend, at the time of publication.
Krishnaratne today explained the reasoning behind his more bearish take on the Vancouver-based security software provider.
“ABT reports Q3/FY17 results tonight after market, and we expect management to deliver on its promise of an increasing pace of revenue growth and double-digit billings gains,” he said. “However, we also reflect on investments necessary to achieve these top-line trends. We have taken a more conservative approach to FY18 spending assumptions, which result in a lowering of our forecast. While we agree with management’s plan to capitalize on emerging information security trends, we believe investors should wait for Q4/FY17 results and the introduction of FY18 guidance in late August before becoming more constructive on the name.”
Krishnaratne thinks Absolute Software will post EBITDA of $6.6-million on revenue of $93.4-million in fiscal 2017. He expects these numbers will improve to EBITDA of $10.0-million on a topline of $101.9-million the following year.
“While our forecast is conservative versus management’s longer-term vision of achieving a revenue growth and EBITDA margin mix of 20%/20%, we note that new product launched (Persistence Services, EDD) have the ability to provide further upside to our revenue estimates with only incremental opex,” adds the analyst.