Buy AcuityAds for a double, Echelon says

AcuityAds (AcuityAds Stock Quote, Chart TSXV:AT) has sprinted out of the gate in 2019 following on two quarters of outperformance, but there’s more upside to come, says Rob Goff of Echelon Wealth Partners, who on Tuesday reiterated his “Speculative Buy” rating and price target of $3.60 per share, representing a projected return of 116 per cent at the time of publication.

Along with the robust financials over the past two quarters, AcuityAds announced in February that it had signed a global financial firm to a $4.5 million contract, which was subsequently increased to $7.5 million in March. Its largest customer to date, Goff says that the signing reaffirms his confidence in management’s ability to execute and secure more large contracts.

“We believe marquee wins validate AT’s AI technology/platform, open doors for further wins, build investor support and put AT under closer watch by competitors and potential acquirors. Consequently, we maintain our bullish organic view that sees further upside from takeover considerations not fully reflected in our price target,” says Goff.

Further, Goff sees a valuation gap between AT and larger competitor The Trade Desk, which is valued at 14.7x EV/Revenue and 50.0x EV/EBITDA for 2019 compared to AT’s 0.8x and 8.4x, respectively.

“The EV/EBITDA multiple for AT reflects its scaling with modest 2019 EBITDA margin of just 10.0 per cent versus The Trade Desk, where margins are forecasted at 29.5 per cent in 2019 and 24.9 per cent in 2018. While The Trade Desk’s scale, capital flexibility, and execution warrant a premium, the valuation gap warrants consideration,” says Goff.

The analyst sees AcuityAds generating fiscal 2019 revenue and Adjusted EBITDA of $97.0 million and $9.7 million, respectively, and fiscal 2020 revenue and Adjusted EBITDA of $116.0 million and $14.4 million, respectively.