Now is a good time to be buying Kinaxis, Laurentian Bank says

Following the company’s fourth quarter results, Laurentian Bank Securities analyst Nick Agostino remains bullish on Kinaxis (Kinaxis Stock Quote, Chart: TSX:KXS).

On February 28, Kinaxis reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted (all figures USD) EBITDA of 9.0-million on revenue of $38.4-million.

“We continued to deliver high revenue growth and strong profitability in 2018, reflecting the sustained strength of our business. Throughout the year, we executed on a number of strategic investments including the expansion of our global sales team and key product innovations. These investments helped drive our strong financial performance and will position Kinaxis for continued growth in 2019 and beyond,” said John Sicard, Kinaxis CEO. “Our stronger focus in Europe supported a number of recent blue-chip customer wins, including Novartis, Unilever and Dyson. Our partner network continues to expand, as demonstrated by the recent announcement of a partnership with EY. We continued to scale our global workforce and strengthen the management team, most recently adding Anne Robinson as Chief Strategy Officer. Finally, since product innovation remains the key to success at Kinaxis, we continued to add new product capabilities and win industry recognition for our unique product differentiation. We expect to accelerate our investments in product innovation even further in 2019.”

Agostino says KXS’s EBITDA and forecast for EBITDA were both below his estimates, but the analyst says he “isn’t fussed” by it.

“With in-line sales guidance, significant post-quarter contract wins, and multiple indications of accelerated sales activity (incl. increased backlog and deferred revenue – see page 2), KXS remains well positioned to deliver ongoing sales growth. We expect operating leverage to develop post 2019, and note the increased S&M investment is predominantly weighted to Europe and Asia in response to increased demand. Management also indicated it has entered new verticals and is seeing a broad expansion of the pipeline, particularly in CPG and Automotive.

In a research update to clients today, Agostino maintained his “Buy” rating and one-year price target of $100.00, implying a return of 31.5 per cent at the time of publication.

Agostino thinks KXS will post EBITDA of $47.2-million on revenue of $185.2-million in fiscal 2019. He expects those numbers will improve to EBITDA of $56.7-million on a topline of $214.0-million the following year.

“KXS currently trades at 7.4x NTM EV/Sales,” the analyst adds. “Our focus on KXS always has been, and remains firmly on top line growth. We believe the share price weakness is likely the result of an inappropriate emphasis on near-term EBITDA, providing investors with an entry point