AcuityAds still has 114% upside, says Paradigm Capital

AcuityAds (AcuityAds Stock Quote, Chart, News: TSXV:AT) has been one of the more noteworthy tech movers on the TSXV this year, but Paradigm Capital analyst Kevin Krishnaratne thinks the stock has a lot of room left to climb.

In a research update to clients today, Krishnaratne maintained his “Buy” rating on AcuityAds, but raised his one-year price target on the stock from $6.00 to $8.00, a new target that implied a return of 114 per cent at the time of publication, including dividend.

Krishnaratne explains the reason for his target change is that he has increased his multiple from 4.0x to 5.0x 2018 net revenue. The analyst says a recent downturn in Acuity’s share price is a clear buying opportunity.

“Our analysis highlights Acuity’s potential to reach +20% EBITDA margins on net revenue that is projected to grow +20%,” the analyst says. “This is a very good profile on par with many software peers we track that trade at EV/Revenue multiples of 5.0–6.0x 2018e. Confidence in Acuity’s Self-Service model which is growing +150% y/y, along with multiple opportunities for upside on the back of new client wins, geographic expansion, and M&A support our view that the 30% sell-off in shares from their March peak is well overextended.”

The analyst says Acuity is cheap compared to its most direct peer.

“Our new $8.00 target (was $6.00) reflects a forward EV/Net Revenue multiple on CY18 estimates of ~5.0x. For context, targets for The Trade Desk, which is AT’s closest publicly traded comparable, imply a multiple of ~6.0x CY18 estimates.”

Krishnaratne thinks AcuityAds will post EBITDA of $5.7-million on revenue of $83.2-million in fiscal 2017. He expects those numbers will improve to EBITDA of $10.5-million on a topline of $108.1-million the following year.