Kinaxis is cheap compared to its peers, Paradigm Capital says

After a quarter that was essentially in-line with his expectations, Paradigm Capital analyst Kevin Krishnaratne has maintained his “Buy” rating on Kinaxis (Kinaxis Stock Quote, Chart TSX:KXS).

Last Thursday, Kinaxis reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted EBITDA of $9.0-million on revenue of $38.3-million, a topline that was up 11.3 per cent over the same period last year.

“”We are pleased to provide guidance for fiscal 2019 that reflects accelerating revenue growth and continued strong profitability,” CFO Richard Monkman said. “Key 2019 investments will include the accelerated growth of our engineering team to further drive product innovation, together with the continued expansion of our global sales, marketing and support teams.”

Krishnaratne notes that KXS’s EBITDA bested his expectations slightly, while revenue fell slightly under what he had modeled. The analyst says he believes the company is still in the early stages of its story.

“Kinaxis is a growth story first, in our view, given its sub-10% market share and differentiated solution gaining traction in new verticals and at larger customers, reflected in 2019 guidance calling for SaaS growth to accelerate to 22–24% versus 21% in 2018, and implied total subscription growth of ~28%, with management reiterating a long-term mid-20% SaaS growth profile,” the analyst says. “We believe Friday’s 8% sell-off, which was driven by outlook for a y/y step down in margin to 23–25% versus 28% in 2018 owing to an acceleration in R&D and sales spending, presents a buying opportunity for investors with a long-term view. Kinaxis is trading at a discount to other Enterprise SaaS companies at ~6.0x 2020e revenue, despite having an attractive operating profile boasting strong subscription growth (~25%) and robust EBITDA margins (~25%) — we think KXS should trade at least in line with peers on an EV/Sales basis.”

In a research update to clients Monday, the Paradigm analyst maintained his “Buy” rating and one-year price target of $100.00 on KXS, implying a return of 31 per cent at the time of publication.

Krishnaratne thinks Kinaxis will post Adjusted EBITDA of $44.4 million on revenue of $187.7-million in fiscal 2019. He expects those numbers will improve to EBITDA of $53.2-million on a topline of $216.3-million the following year.