Canadian tech name Converge Technology Solutions (Converge Technology Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CTS) is off by almost 50 per cent over the past 12 months, which represents a dramatic about-face for a stock that was an early pandemic winner. What’s an investor to do with CTS, now that the market has taken a sledgehammer to tech stocks across the board, including Converge?
Buy it, says Bruce Campbell of StoneCastle Investment Management, who just named Converge as one of his top picks for the year ahead.
“Converge has been growing quite aggressively both via acquisition and organically, and if you look at what they’ve done over the last few years, I’ve kind of lost track of how many acquisitions they’ve made it — it’s a lot,” said Campbell, speaking on BNN Bloomberg on Friday.
“They continue to build out now and they’ve gone to new geographic regions. They’ve gone into different verticals, as well, so they’re in cybersecurity and they’re in IT services,” he said.
An IT and cloud solution provider, Toronto-headquartered Converge conducts a range of services from advanced analytics and application modernization to digital infrastructure and workplace management along with advisory and managed services to cover the length and breadth of the IT spectrum. As far as its growth trajectory is concerned, CTS has been pushing into the European market lately, as exemplified by an acquisition announced last month of UK-based information and communications technology (ICT) solutions company for the education sector, Stone Group. That pickup would mark Converge’s 35th acquisition over the past five years.
“2022 has been a monumental year of growth for Converge in the European market,” stated Shaun Maine, CEO of Converge, in a September 22 press release. “Along with our recent acquisitions in Germany, we are excited to leverage the knowledge and skills of Stone Group and its teams to continue enhancing our capabilities and offerings to our clients in the United Kingdom and European Union.”
Converge’s growth has been reflected in its quarterly numbers, where the company registered a 73 per cent year-over-year growth in revenue for its second quarter, 2022, delivered in August. CTS’s Q2 topline was $596.7 million, while its adjusted EBITDA jumped by an even bigger 80 per cent to $21.7 million.
For Campbell, the decline in Converge’s share price has little to do with the quality of the business, making CTS an attractive option right now.
“They’ve had tremendous growth about 49 per cent compounded growth, and the stock trades at around 7.5x next year’s EBITDA. So, if you do the standard growth-to-valuation, the stock could go much higher,” he said.
“It’s really been handicapped here because of the fact that it’s a technology stock and that’s been out of favour, but they’re profitable and they continue to grow,” Campbell said.