AcuityAds is a double, Haywood Securities says

AcuityAds (AcuityAds Stock Quote, Chart TSXV:AT) is back on track after a volatile year, says analyst Pardeep Sangha of Haywood Securities, who on Thursday reiterated his “Buy” rating with the raised target price of $2.50 (previously $2.00), representing a projected return of 98 per cent at the time of publication.

Yesterday, digital advertising tech company AcuityAds released its third quarter 2018 financials, which beat the consensus estimate on revenue — $17.3 million versus the consensus $15.9 million —but was slightly off on expected Adj. EBITDA— $1.1 million versus the Street’s $1.2 million.

“We are very pleased with the results we generated in the quarter, as well as the overall progress we have achieved this year,” said Tal Hayek, CEO, in a press release. “The investments we made earlier this year in our AI technology platform and the reorganization of our US sales leadership team, together with our recently completed acquisitions, has resulted in Acuity delivering this strong financial performance for the quarter. Our continued growth in the third quarter, combined with the results we are already seeing in the fourth quarter, clearly demonstrates that we have regained our sales momentum.”

Sangha has a positive outlook for both Q4 and all of 2019, forecasting record Q4 revenue of $24.1 million followed by 39 per cent revenue growth and ten per cent EBITDA margins for 2019.

“We believe Acuity is back on track as the Company continues to show growth and improving profitability,” says Sangha in a research report to clients. “We feel Acuity’s current share price offers a compelling entry point for investors given the Company has put bad partners behind it, shored up its balance sheet and is experiencing accelerated growth both organically and through acquisitions.”

Sangha says that Acuity is undervalued as it currently trades at 0.8x EV/Revenue and 8.5x his 2019 EV/EBITDA estimate, which compares to its peer group average of 3.0x EV/Revenue and 17.3x consensus EV/EBITDA estimates. The analyst’s new target represents a 1.5x EV/Revenue multiple and 15.5x EV/EBITDA multiple of his 2019 forecast.

The analyst sees upcoming catalysts for Acuity to be: (1) achieving record revenue in Q4; (2) announcing additional acquisitions in 2019; (3) improving to ten per cent EBITDA margin in 2019; and a new platform launch in Q1 of 2019.