kneat.com is a diamond in the rough, this portfolio manager says

Software company kneat.com (kneat.com Stock Quote, Charts, News, Analysts, Financials TSX:KSI) is headed in the right direction, according to Michael Hakes of The Murray Wealth Group. Hakes says an expansion of kneat’s total addressable market (TAM) will be a boost to the stock.

With headquarters in Limerick, Ireland, kneat is a compliance and validation software company with a focus on the health and pharma sector. And while the stock has been going nowhere fast over the past year or more, Hakes, senior portfolio manager at Murray Wealth, sees upside ahead.

“We’re very, very positive on kneat. It’s like a diamond in the rough just waiting to be found,” said Hakes, speaking on BNN Bloomberg on Friday.

Hakes says kneat has a lot of room for organic growth with its Kneat Gx SaaS platform, which gives users the ability to accomplish tasks such as authoring, reviewing and approving documents and executing testing online. 

“Typically, they’ll go into a pharma company and start with one plant with their software and then rolling it out across the entire footprint of that company. They’re in various stages of that rollout within their companies and they’re also adding customers as we go, so the TAM is getting larger and larger even though the stock may be a little bit lower from where it was [last year],” he said.

kneat reported its 2022 financials in February, with revenue climbing 53 per cent from 2021’s numbers to $23.7 million. SaaS revenue alone was at $17.3 million, while adjusted EBITDA was a loss of $2.9 million compared to a loss of $1.1 million a year earlier.

Looking ahead, management has indicated that 2023’s revenue will be another step up for the company, due to expanding services within its existing customer base but also through new customer wins. 

Chief Financial Officer Hugh Kavanagh said the company laid the groundwork in 2022 in sales and marketing and research and development and should see the payoff this year.

“[Our] investments set us up to grow revenue faster than operating costs in 2023, even as we continue hiring opportunistically to strategically expand our customer base and use cases. With this momentum, along with our solid financial position, we are looking forward to what this powerful combination can do in 2023,” Kavanagh said in a press release.

Hakes said kneat’s TAM had been set at $600 million a year ago and the company is currently at an annual recurring revenue rate of $60 million, which puts kneat at a ten per cent penetration rate. 

But there’s more to come, according to Hakes.

“I feel they’re going to increase that TAM in the next six to 12 months because they’re, they’re finding new ways of selling their product to different industries,” he said.