Docebo is a Top Pick, says ATB Capital

ATB Capital Markets delivered its weekly Growth & Innovation update on Sunday, with analyst Martin Toner highlighting Docebo Inc (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO) as one of ATB’s Top Growth & Innovation Picks for 2023.

Toner said the past week was a good one for Growth & Innovation (G&I) stocks, as nine of ten names in ATB’s G&I coverage universe were up for the week, averaging a return of 6.2 per cent compared to the NASDAQ Composite which was up 3.9 per cent. Toner said growth stocks posted gains as investors waited on US CPI data (which showed consumer prices falling for the first time in two-and-a-half years), as bets of a slower pace of interest rate increases were a source of optimism.

Toner said while it’s clear that investor interest over 2022 was focused on companies showing profitability, growth continues to be an attraction, nonetheless. Toner looked at 100 North American software companies split into three groups — profitable, breakeven and unprofitable — and found that profitable companies performed best since November 2021.

 “At the peak, the unprofitable group had the highest next 12 months price-to-sales (P/S) ratio, followed by the breakeven and profitable groups. This has flipped, indicating investors are seeking profitability or a more severe dislocation in less-profitable, higher-growth companies. Though profitability was rewarded in 2022, growth is still sought after,” Toner wrote.

The profitability factor is one of the attractions to cloud-based learning management system provider Docebo, argued Toner, saying that in today’s budget-conscious environment, customers will see Docebo’s use-case-agnostic approach as a tailwind.

“Turning profitable earlier than anticipated, management has stated its intention to achieve ten per cent profitability by the end of FY23. The Company has also been able to sustain its high growth, and given its growth is double the profitable group’s average, we believe Docebo’s stock has become dislocated from its fundamentals and will be rewarded for continued execution on both its top and bottom lines,” he wrote.

Toner reiterated an “Outperform” rating on Docebo and C$90.00 target price, which at the time of publication represented a projected one-year return of 90.9 per cent.

Toner said he’s continuing to look for evidence in the M&A market that valuations have reached a point where G&I stocks are becoming attractive and the market has bottomed. The analyst pointed to two recent transactions in Nuvei’s recently announced intention to acquire payments platform Paya Inc for $1.3 billion and Descartes Systems Group’s recent acquisition of shipment management solutions company Supply Vision for $12 million.