Descartes Systems (Descartes Systems Stock Quote, Chart, News TSX:DSG) is hitting new all-time highs this week, but investors should ignore the high valuation and buy it anyway. So says David Burrows of Barometer Capital Management, who thinks this is one stock that will keep adding value for years to come.
Aside from the blip over the back end of 2018, Descartes’ chart is picture perfect, with gains of 247 per cent over the past five years and a 67-per cent return in 2019 alone.
Burrows says that investors shouldn’t shy away from all that success, however, as the company is well-positioned to benefit from macro trends in e-commerce and order fulfillment.
“We own Descartes,” said Burrows, president and chief investment strategist at Barometer, who spoke to BNN Bloomberg on Thursday. “It’s in the logistics business and it’s effectively Software as a Service. 90 per cent of their revenue is recurring and it’s growing very rapidly.”
“We’re in a world where companies are looking to fulfill just in time and in the best way possible, and Descartes helps companies to decide how to get their products from their facility to market in the best way both from a cost and timeliness perspective,” Burrows says.
“Online retail is a big new market for them. It’s a very expensive company but it is a secular grower, meaning that it will grow for many, many years. I think that you need to use a stop on high-multiple stocks, but it’s one that should benefit from this big structural theme in fulfillment,” he says.
Last week, Descartes announced that Jackson, MI, transportation management company Automated Logistics Systems is using Descartes MacroPoint logistics platform to track customers’ supply chains. Descartes acquired MacroPoint in 2017.
“We’re pleased to help ALS gain better insight into the movement of their customers’ shipments and be more proactive in addressing delivery exceptions as they occur,” said Descartes’ Robert Derin, Director of Operations, in a press release. “Descartes MacroPoint provides real-time shipment visibility and gives 3PLs a more complete view of their transportation operations, allowing them to focus on exceptions, better understand the flow of freight and keep customers informed of their deliveries.”
Descartes met analysts’ expectations in its latest quarterly financials, delivered in early December. Revenues were up 19 per cent year-over-year to $83.0 million and up three per cent sequentially, while adjusted EBITDA of $31.5 million represented a 31 per cent year-over-year increase and a four-per-cent rise over the previous quarter. The bulk of Descartes revenue comes from its Services segment which were up 19 per cent from the previous year.
“Descartes continues to deliver predictable results in an increasingly unpredictable business environment,” said CEO Ed Ryan, in a December 4 press release. “Our customers need access to timely, reliable data from multiple sources via a network to fuel decision-making tools that power their businesses. The Global Logistics Network (GLN) does just that, connecting shippers, carriers and logistics service providers on one platform to manage the lifecycle of shipments.”