Ahead of earnings season, ATB Capital Markets analyst Martin Toner delivered a Growth & Innovation update on Sunday, reiterating his stance that a number of tech stocks are looking attractive at current levels in what amounts to “an historic opportunity to buy undervalued growth assets.”
Inflation continues to be a key theme for stocks in ATB’s G&I coverage universe, with Toner saying that payments businesses like Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP), Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD) and Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:LABS) are all potential beneficiaries from rising prices, while businesses are likely to enjoy the value proposition for time-saving software provided by these companies’ platforms.
At the same time, Toner said inflation’s impact on discretionary and luxury goods spend has had a negative effect on SHOP as well as possibly LSPD and LABS, while a recession would dramatically impact consumer spending which would thus affect Shopify and Lightspeed, whose gross merchandise volumes are both heavily weighted to discretionary spending.
“The tight labour market is also having an impact on subscription solutions revenue at Shopify, as becoming a Shopify merchant looks relatively less attractive when attractive employment is abundant and wages are rising,” Toner wrote.
As for enterprise-facing names like Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO) and Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS), Toner said the sticky nature of their software solutions means that they’re likely able to pass on annual price increases to customers or renegotiate subscription terms in order to offset some of the rising input costs. Toner said he’s seen a number of prominent SaaS companies have little pushback so far from customers on price increases.
For automotive dealership platform E Automotive Inc (E Automotive Inc Stock Quote, Charts, News, Analysts, Financials TSX:EINC), Toner said the company has benefitted from historically high used vehicle prices due to a lack of inventory.
As for Softchioce (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC), its managed services are largely insulated from a recession, although its hardware and services segments are more vulnerable, Toner said, likely leading to relatively modest overall revenue declines.
Mortgage lending and insurance platform Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL) has a clear link to inflation and recessionary developments, Toner said, through the broader impact of rising interest rates on home buying and refinancing. The analyst also added that refinancing would likely rebound fairly quickly in a recession.
Inflation is also a problem for Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN), according to Toner, with rising prices for its hardware components and supply chain constraints have been putting pressure on the company’s margins and service levels. Toner noted BLN is in the process of putting into place its first-ever price increase of 15 per cent on hardware and software.
“We believe the impact of inflation on Blackline’s margins has peaked and that they will improve from here,” Toner said.
Finally, on critical energy infrastructure company mCloud Technologies (mCloud Technologies Stock Quote, Charts, News, Analysts, Financials TSX:MCLD), Toner said a recession would “significantly impact” the energy industry, which is an important component of the company’s growth strategy. The analyst said while inflation and higher energy prices will likely make the company’s AssetCare energy efficiency offering appear more attractive. Toner said, “mCloud’s value proposition requires usage, and we have seen AssetCare put on pause during periods of customer stress.”
Note: all dollar amounts below are listed in CDN and all projected returns are as of the publication date of the ATB Capital report.
Stock: Blackline Safety
Quarterly reporting date: January 24, 2023
ATB earnings expectation: In-line results
ATB rating: Outperform
ATB target price: $3.50
Projected one-year return: 79.4 per cent
Stock: Docebo
Quarterly reporting date: March 9, 2023
ATB earnings expectation: In-line results
ATB rating: Outperform
ATB target price: $90.00
Projected one-year return: 95.7 per cent
Stock: E Automotive
Quarterly reporting date: March 21, 2023
ATB earnings expectation: Below consensus
ATB rating: Outperform
ATB target price: $12.50
Projected one-year return: 191.4 per cent
Stock: Kinaxis
Quarterly reporting date: March 1, 2023
ATB earnings expectation: In-line results
ATB rating: Outperform
ATB target price: $200.00
Projected one-year return: 34.0 per cent
Stock: Lightspeed Commerce
Quarterly reporting date: February 2, 2023
ATB earnings expectation: Below consensus
ATB rating: Outperform
ATB target price: $60.00
Projected one-year return: 171.5 per cent
Stock: mCloud Technologies
Quarterly reporting date: March 30, 2023
ATB earnings expectation: In-line results
ATB rating: Speculative Buy
ATB target price: $3.00
Projected one-year return: 143.9 per cent
Stock: Real Matters
Quarterly reporting date: January 27, 2023
ATB earnings expectation: In-line results
ATB rating: Outperform
ATB target price: $8.00
Projected one-year return: 87.8 per cent
Stock: Shopify
Quarterly reporting date: February 15, 2023
ATB earnings expectation: Below consensus
ATB rating: Outperform
ATB target price: $75.00
Projected one-year return: 38.5 per cent
Stock: Softchoice
Quarterly reporting date: March 3, 2023
ATB earnings expectation: Above consensus
ATB rating: Outperform
ATB target price: $27.00
Projected one-year return: 47.6 per cent
Stock: Thinkific Labs
Quarterly reporting date: February 22, 2023
ATB earnings expectation: In-line results
ATB rating: Outperform
ATB target price: $6.50
Projected one-year return: 245.7 per cent
Ahead of the company's fourth quarter earnings report, due May 16, Stifel analyst Justin Keywood says ATS Corp (ATS Corp… [Read More]
Its first quarter results are in the books and Roth MKM analyst Justin Clare thinks there is money to be… [Read More]
Beacon analyst Russell Stanley says the most recent results were better than expected for The Cannabist Company (The Cannabist Company… [Read More]
Following the company's first quarter results, National Bank Financial analyst Richard Tse has maintained his "Outperform" rating on Constellation Software… [Read More]
Its first quarter results are in the books and National Bank Financials analyst Richard Tse is feeling less bullish about… [Read More]
Following the company's first quarter results, Echelon Capital Markets analyst Andrew Semple has maintained his "Hold" rating on Jushi Holdings… [Read More]