Don’t bet against Descartes Systems, this fund manager says

Descartes Systems Group (Descartes Systems Group Stock Quote, Chart TSX:DSG) reached new all-time highs earlier this year but the stock has experienced a significant pullback over the past month. But is there still more upside to DSG in 2019?

You bet, says David Burrows, president of Barometer Capital Management, who thinks the overall economic forecast is far from bleak.

M&A-heavy logistics company Descartes Systems had a break even year in 2018 but came roaring out of the gate for 2019, gaining 55 per cent in value between January 1 and the end of May. But June saw DSG lose 14 per cent as the market sentiment on the name has cooled.

Burrows, however, says investors shouldn’t be worried about Descartes, calling it one of the great Canadian growth stocks.

“The company is supplying services and analytics into logistics companies, and they have done a great job of growing this business,” says Burrows, in conversation with BNN Bloomberg on Thursday. “If you look at what’s been happening on a quarter-by-quarter basis since halfway through 2017, revenue growth has accelerated from 13-14 per cent to north of 20 per cent, so this is fuelling the move in the share price.”

“This is a company that has been disrupting the way that people do business and they’ve been doing it for a long time,” he says.

The recent slump started shortly after Descartes released its fiscal first quarter results on May 29. Descartes reported quarterly revenue of $78 million, a 16-per-cent year-over-year increase, and adjusted EBITDA of $28.7 million, a 30-per-cent increase year-over-year. Both numbers were in line with analysts’ estimates for the quarter.

Recent softness aside, Burrows thinks that DSG will do fine in a sector that should continue to perform.

“As in any secular growth stock, there is a risk of disappointment at any point in time, but I like Transports,” Burrows says. “I don’t believe that we’re headed into some major slowdown in the economy. I think we’re more likely to have a soft landing and then re-acceleration later in the year. That’s what some of the key sectors are telling us. And so this is a company that I think will continue to do quite well.”

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