Tecsys is my top pick, this portfolio manager says

With the pullback on tech stocks over the past year, there are many names now looking cheap, or at least less expensive than they were a few months ago. But a profitable technology company sitting well-positioned in a growing economic segment? That’s rarer, and it’s why portfolio manager Stephen Takacsy has been singing the praises of Canadian supply chain software company Tecsys Inc (Tecsys Stock Quote, Charts, News, Analysts, Financials TSX:TCS). Hovering around $30 per share, TCS is a long way from the high-$50 range where it traded a little over a year ago, but Takacsy thinks there’s lots of upside from here, saying $100 isn’t too far-fetched for this stock.

“We recommended Tecsys back in 2019 when it was $15, and it became one of the 30 top-performing stocks on the TSX for the next three years,” said Takacsy, CEO of Lester Asset Management, who spoke on a BNN Bloomberg segment on Monday where he nominated Tecsys as one of his three top picks for the next 12 months.

“It hit over $60 and then the share price has pulled back even though the company has grown tremendously. It’s generating record sales, they have a record backlog, a robust pipeline of business and it’s actually a profitable tech stock with good margins,” he said.

Montreal-based Tecsys has both proprietary software and third-party hardware for enterprise-level customers to help handle their supply chain issues, with its main clients in the healthcare space, like hospitals and healthcare networks.

“They’re mainly in the US where they basically dominate that vertical and they also serve complex distribution businesses, logistics and retailers,” Takacsy said. “Their solutions are end-to-end, for purchase order management right through inventory warehousing to accounting and analytics.”

“We really think this this company deserves much higher multiples, closer to its peer group which is trading at a significantly higher multiple,” he said. “We think the stock has a good path forward to the $100 level over the next few years. Also, it’s a likely takeover candidate down the road.”

Tecsys reported its latest quarterly earnings last week, where the company saw revenue increase by 11 per cent in its fiscal second quarter 2023 to $38.1 million and adjusted EBITDA drop by 13 per cent to $28 million. SaaS-based revenue increased by 34 per cent year-over-year to $8.8 million.

The stock is now about even since the Q2 release, while year-to-date, TCS is currently down about 47 per cent.