Coveo Solutions has a 71 per cent upside, says National Bank

Investors looking for a tech stock that ticks all the boxes should be thinking about Quebec-based artificial intelligence solutions company Coveo Solutions (Coveo Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CVO). That’s the advice from National Bank Financial analyst Richard Tse who reiterated on Thursday an “Outperform” rating on the stock, saying Coveo’s proven technology and multiple avenues for growth are a winning combination.

A SaaS-based, digital experience-focused solutions provider, Coveo held its Capital Markets Day on Thursday, with Tse coming away from the event impressed with the company’s ability to drive solid return on investment for its clients. Tse pointed to examples like Salesforce, which Coveo’s solutions allow its 60 million unique visitors to self-serve their customer service requests, and global footwear brand Caleres who gained a 25 per cent increase in online conversion rates with Coveo’s help.

“[W]e believe Coveo embodies nearly all the attributes we value in growth names from leading (technical) IP corroborated by reputable industry sources, competent (experienced) growth leadership, and product validation (ROI) from a roster of marquee enterprise customers and partners – all defended by high barriers to entry to drive an organic growth rate above 25 per cent,” Tse wrote.

“And while we recognize valuations for the group have generally been reset across the board for the sector, at 2.7x EV/S, CVO looks compelling,” Tse wrote.

Tse said Coveo appears to have recognized the change in the winds as far as a distaste for tech companies without earnings go, with management now moving to an accelerated path to profitability, driving a 900 bps reduction in adjusted opex in its latest reported quarter, the company’s Q2 fiscal 2023.

Tse is expecting Coveo to generate full fiscal 2023 revenue and adjusted EBITDA of $111.5 million and negative $13.6 million, respectively, and moving to 2024’s revenue and EBITDA of $142.4 million and negative $1.7 million, respectively. (All figures in US dollars except where noted otherwise.)

With his “Outperform” rating, Tse has maintained a 12-month target on CVO of C$11.00 per share, which at the time of publication represented a projected return of 70.5 per cent.

For its fiscal second quarter, delivered on November 7, Coveo registered $27.9 million in revenue, up 43 per cent year-over-year, and a net loss of $9.9 million. SaaS Subscription revenue was up 47 per cent to $25.5 million.

Coveo went public one year ago and saw its share price drop over the first six months before levelling off. Year-to-date, CVO is currently down about 63 per cent.