KXS Stock: buying opportunity is now, says Eight Capital

After a quarter he describes as a “mixed bag” Eight Capital analyst Christian Sgro thinks investors should take advantage of any negative feelings about Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS).

On November KXS reported its Q3, 2023 results. The company posted Adjusted EBITDA of $22.8-million on revenue of $108.1-million, better than the $14.8-million EBITDA and $89.5-million topline it delivered in the same period last year.

“Despite turbulent conditions globally, Kinaxis is very pleased to deliver another balanced quarter of strong SaaS revenue growth and profitability,” CEO John Sicard said. “The fundamental demand for supply chain management software continues to be robust. Our unique concurrency technique, expanded product vision and market leadership continue to help us land exciting brands of all sizes that are looking to fully orchestrate their global supply chains. We are pleased to be able to update our guidance to reflect higher profitability and subscription term licence revenue, while our SaaS revenue growth outlook still represents acceleration over last year. Kinaxis is leading the transformation of supply chains from cost centres to profit centres, with a focus on growing revenue, cash flow and return on investment for small, medium and large enterprises. We have made supply chain excellence available for everyone.”

The analyst gave his take on the third quarter results.

“We think skeptics will have enough to pick at in the Q3/23 report, including a deceleration in ARR growth and reduced SaaS guidance,” he argued. “This all reinforces a growing consensus view around challenged IT spend and an inability to close enterprise deals in this environment,” he said. Balancing this demand-related skepticism, the company hinted at an ARR reacceleration in Q4/23 and the revised guidance suggests upside to current Q4/23 revenue and profitability consensus estimates. Product-market leadership and a maturing go-to-market make us confident that Kinaxis can execute in the mid-term. We believe there is a buying opportunity on the back of this report. We think reduced mid-term forecast visibility is built into the current depressed share price; however, we believe that Kinaxis’ market dynamics are not materially different from those of its SaaS peers, whom it has recently underperformed. We think a newly announced NCIB is a good use of capital and a source of share price support in the near-term.

In a research update to clients November 2, Sgro maintained his “Buy” rating and one-year price target of $230.00 on KXS.