Two Canadian software stocks that analysts say are undervalued

The cannabis sector is a washout. Energy stocks are falling. Fintech is full of landmines following the collapse of Silicon Valley Bank.

So where does an enterprising investor look for returns in 2023? How about software?

Take a look at the S&P 500 Software Industry Index, it’s a been a nice little performer this year, but is still down significantly from its highs that were made in late 2022. Room to run?

At Cantech Letter we track which stocks analysts are bullish about on a daily basis. And lately, there’s been a lot of software stocks winning the praises of these experts. Here are two recently recommended Canadian software stocks that analysts think can deliver big returns to you.

THINK RESEARCH

Digital health software company Think Research (Think Research Corp Stock Quote, Charts, News, Analysts, Financials TSXV:THNK), is one to watch, says Echelon Capital Markets analyst Rob Goff, who increased his price target on the stock in a recent report to clients.

“During this time, it’s been a challenging ride for Think with recurring COVID-19 restrictions, drug manufacturing constraints and macro uncertainties helping to lead a steep share price decline that paralleled the broader small cap tech landscape. However, through this dark cloud, Think has quietly won several province-wide contracts in Ontario and increased its exposure to sticky, recurring/reoccurring revenues (85 per cent+), while exercising disciplined cost reductions moving the Company toward EBITDA-positive operations (anticipated for Q422 results and beyond),” Goff said.

With the update, Goff reiterated his “Speculative Buy” rating on THNK while raising his target from $0.90 to $1.10 per share, representing at press time a projected one-year return of 100.0 per cent.

DOCEBO

ATB Capital Markets analyst Martin Toner likes the latest quarterly results from learning management platform Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO).

Toner published a report on the company recently in which he reiterated his “Outperform” rating on the stock, saying profitability looks good on DCBO.

DCBO recently announced its fourth quarter and full year financials. Revenue was up 31 per cent year-over-year to $39.0 million and gross profit up 33 per cent to $31.4 million. Adjusted EBITDA was at $2.3 million compared to negative $1.5 million a year earlier, while cash flow from operations was $2.2 million compared to neutral cash flows a year ago. (All figures in US dollars except where noted otherwise.)

“Docebo continues to show its ability to grow its revenue while controlling costs and turning profitable, and we expect investors to react positively to today’s results,” Toner said of the results.

With his most recent update, Toner reiterated his 12-month target price of C$90 for Docebo, which at the time of publication was good for a projected one-year return of 84 per cent.