Buy Kinaxis stock on pullbacks, this investor says

Kinaxis Inc (Kinaxis Stock Quote, Chart TSX:KXS) shareholders have been nicely rewarded over the past few years, but is there any runway left for the supply chain software company? You bet, says analyst Jamie Murray of the Murray Wealth Group, who argues that the recent slowdown in software is but a small bump in the road for KXS.

Ottawa-based Kinaxis has been on quite a run since its IPO in 2014, gaining over 600 per cent in value during those four years. 2018 has been no exception, as the company keeps impressing investors by picking up big clients, including Ipsen, BASF and a number of the major automakers like Toyota and Ford.

In its latest quarterly earnings report in early August, Kinaxis posted revenues of $39 million for the period ended June 30, representing close to 19 per cent year-over-year growth. (Kinaxis reports its financials in US dollars.) Is subscription revenue led the way with a 24 per cent year-over-year growth. The company also saw its EBITDA rise over the second quarter from $7.5 million in Q2 of 2017 to $11.2 million.

"Q2 represented another strong quarter for Kinaxis—both the top and bottom line,” said CEO John Sicard. “We had record revenue from Europe, which reaffirms our decision to invest significant sales and operations resources in the region. We see even greater opportunity ahead as the expanded European team continues to engage with prospective accounts across all market verticals, but particularly Consumer Packaged Goods, Automotive, and Life Sciences.”

KXS climbed higher on the good news, starting August off with a 12 per cent jump in share price. Since then, however, the stock has been fading and now sits seven per cent off its mid-August high of C$100.28.

But the pullback shouldn’t worry investors, says Murray, Head of Research for the Murray Wealth Group.

“The whole entire software space has been on fire for the past two, three years,” says Murray, to BNN Bloomberg . “The valuations are getting a little stretched, in our opinion. I think we’ve seen some software high-flyers show some weakness in the last month or so and I think Kinaxis is going to trade in sympathy with those stocks, at least in terms of valuation.”

“Longer term, there’s lots of growth to still come out of it, so I think it’ll do well,” he says.

“It’s been a great stock,” says Murray. “We own a little bit in some Canadian-only portfolios that we manage and we like it.”