kneat.com is heading higher, Echelon says

Recent contract wins with global healthcare leaders are proof positive that kneat.com (kneat.com Stock Quote, Charts, News, Analysts, Financials TSX:KSI) is heading for a record year in terms of revenue and earnings. That’s according to Echelon Capital Markets analyst Rob Goff, who provided an update to clients on the company on Thursday where he reiterated a “Speculative Buy” rating and $4.20 target price. Goff said kneat’s system validation and document management platform is becoming the standard for global pharma.

After briefly rising above $4.50 in mid-2021, kneat shares have been trading in the $2.50-$3.00 range for the past year. But that should change, says Goff, who pointed to kneat’s expanding total addressable market (TAM) as a good sign. Goff estimates KSI now has master service agreements (MSAs) with 15 of the top 20 global healthcare leaders, which supports the company’s baseline revenues crossing management’s long-stated $50 million benchmark. 

“We look for KSI to establish a higher benchmark while it similarly redefines its TAM to $700 million+ as it includes adjacent markets where KSI has seen initial wins and where current R&D expenditures will broaden the Company’s service applications,” Goff said.

“The numbers really tell the thesis – SaaS revenues have advanced from $8.7 million in 2021 to $17.3 million in 2022 with this year on track to meet or exceed our $28.6 million. Thus, performance together with announced wins, give support to our SaaS revenues reaching levels of $41.8 million in 2024, $56.0 million in 2025 and $74.5 million in 2026,” Goff wrote.

At the same time, Goff pointed to kneat’s recently announced €15 million secured debt financing funds to support its “aggressive” R&D development spend and continued growth. The analyst said KSI is investing in higher sales and marketing expenditures to build out its distribution capabilities with small and medium-sized clients and for emerging adjacent markets like cosmetics. All that will generate incremental revenues and expand kneat’s competitive moat, Goff argued.

“We maintain our bullish view toward the Company’s organic growth as it completes its transition to a SaaS model. We believe KSI represents an attractive investment valued at 6.5x 2023 revenues and 9.7x EV/Gross Profits in the context of larger, slower growth peers Veeva Systems at 12.5x revenues and 17.2x EV/Gross Profits, and Aspen Technology, Inc. at 9.6x revenues and 12.6x EV/Gross Profits,” he wrote. 

At press time, Goff’s $4.20 target represented a projected one-year return of 45 per cent.