After revising its guidance downward early this week, shares of AcuityAds (TSXV:AT) have tumbled. But for investors with a longer term investment horizon this development may be the window of opportunity they needed, says Echelon Wealth Partners analyst Rob Goff.
On Monday, AcuityAds announced that ongoing foreign exchange pressures, the cutting of some wayward self-serve customers in Europe, Middle East and Africa, and losing a significant customer of recent acquisition 140 Proof would impact its 2017 topline significantly.
“”We feel strongly that our actions this quarter demonstrate that management has taken a long-term view to creating and enhancing shareholder value,” said CEO Tal Hayek. “When we see any activity that does not meet our high standards, we move swiftly and without compromise. When we acquire, we are meticulously focused on deal structure to mitigate risk. Despite these adjustments to our revenue guidance, we remain more committed than ever to both our organic and non-organic growth strategy.”
Goff says this development changes the investment profile of the once high-flying AcuityAds. And while the stock might have been a favourite of momentum investors over the past several quarters, he believes more value-oriented players may now enter the picture.
In a research update to clients Monday, Goff maintained his “Speculative Buy” rating on AcuityAds, but lowered his one-year price target on the stock from $6.40 to $4.26, implying a return of 106.3 per cent at the time of publication.
“We look to the revised guidance as a recalibration, while maintaining our belief that industry growth dynamics remain strong,” the analyst says. “While 140 Proof remains a win as a ~$2.3M net acquisition, the revised outlook will place future acquisitions under tough investor scrutiny. We lowered our PT by an aggressive $2.15 to $4.25, reflecting our forecast reductions and by taking our DCF discount rate from 16.5% to 18%. By deferring our forecasts by one year, we are essentially required to reduce our PT consistent with our discount rate. We took a further reduction to move our discount rate to a more conservative 18% as investors are likely to await further evidence of positive momentum from the core business together with financials associated with any prospective acquisition. While investors are likely to await evidence of underlying strength and to judge acquisitions against tough financials, we believe the share price recalibration significantly discounts the value of the core business. We believe value-oriented, patient investors should take advantage of the share decline.”
Goff thinks AcuityAds will generate Adjusted EBITDA of $1.1-million on revenue of $58.9-million in fiscal 2017. He expects those numbers will improve to EBITDA of $4.4-million on a topline of $77.7-million the following year.