Kinaxis is taking two steps forward and two steps back, this investor says

Kinaxis (Kinaxis Stock Quote, Chart TSX:KXS) has been a top performer for a number of years but that string of success has been challenged over the past year as the stock struggles to get back to highs set last summer. It’s enough to cast doubt on whether the supply chain company has the mojo to deliver on its growth promises, says Teal Linde.

“Kinaxis is a stock that we used to own. It wasn’t too long ago that we sold it. We had it for about three years. I would characterize [the stock] as going two steps forward, two steps back, two steps forward, two steps back,” Linde told BNN Bloomberg on Monday.

“And while this is occurring, you’re looking at the valuation of 60x-70x earnings and a growth rate of 20 per cent and you’re wondering, do we really want to own a stock that is this expensive and that continues to go back and forth?” he says.

Over three decades old, Ottawa-based Kinaxis went public in 2014 at $13.00 per share and steadily gained in value until last August. After peeking above $100.00, KXS has since fallen to the mid-$70 to mid-$80 range but is currently up 23 per cent year-to-date.

Kinaxis last reported earnings in early May, where its first quarter ended March 31, 2019, registered $45.8 million in revenue, a 24 per cent increase year-over-year, and adjusted EBITDA of $16.0 million, up 29 per cent. Both top and bottom lines were better than the analysts’ consensus, with CEO John Sicard saying the company’s expanded sales team and global marketing have helped sales numbers as well as boosting Kinaxis’s pipeline.

“As we have consistently demonstrated through marquee new partnerships and customer announcements, such as Lenovo this past quarter, our competitive position remains extremely strong. I remain firmly confident in our market position, our sales strategy, and our unique concurrent planning platform as we continue to execute against our growth plans,” said Sicard in a press release.

Management guidance was equally sunny, expecting SaaS bookings to growth during the rest of 2019 and its EBITDA margin to climb to between 25 and 27 per cent.

Nevertheless, Linde says there are unanswered questions lingering about KXS. “My concern is that the consistency of the results isn’t quite there, and there is some discussion that they’re finding the growing of their business to be a bit more challenging than expected,” says Linde.

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