CVO is an AI stock you should own, National Bank says

A lot of companies are invoking their forays into AI in an attempt to beef up their valuations, but Coveo Solutions (Coveo Solutions Stock Quote, Chart, News, Analysts, Financials TSX:CVO) is the real deal, says National Bank Financial analyst Richard Tse.

On November 6, Coveo reported its Q2, 2024 results. The company lost $6.5-million on revenue of $31.2-million, a topline that was up 12 per cent over the same period last year.

“It continues to be an exciting time for the company,” said Louis Tetu, chairman and chief executive officer of Coveo. “Since the launch of Coveo Relevance Generative Answering in the first quarter, we’ve seen promising results from early adopters within our existing customer base, including leading companies like Xero, as we move towards its general availability in December. Interest in our enterprise-grade generative AI offering continues to be high, and we believe we have a tremendous opportunity to capitalize on our proven, trusted and leading AI platform to deliver significant value to our enterprise customers.”

Tse summarized the quarter.

“Coveo reported essentially in-line FQ2 (CQ3) results,” he said. “While adjusted operating income was better than expectations, we’d attribute that to stock-based compensation (SBC), which was up 34% Q/Q (accruals, tough comp). With respect to the notable KPIs, they were solid with SaaS Subscription Revenue up 15% Y/Y (+19% Y/Y ex. anticipated churn from Qubit) to $29.4 mln and a Net Expansion Rate (NER) of 106% (111% ex. legacy Qubit-related attrition) within the Company’s target range of 105%-115%. But most notable in our view was the signing of five orders for the Company’s Generative Answering product which goes to General Availability (GA) in December.”

In a research update to clients November 7, Tse maintained his “Outperform” rating and one-year price target of $14.00 on the stock, implying a return of 35.3 per cent at the time of publication.

Tse thinks CVO will post Adjusted EBITDA of $1.8-million on revenue of $125.5-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $4.2-million on a topline of $149.2-million the following year.

“All in, we believe Coveo remains one of the few direct plays on AI in our coverage universe and it’s our view the Company will see an accelerating growth trajectory over the next 12 months, Tse concluded.