KSI stock is still undervalued, Echelon says

The stock has been on a tear, but Echelon Capital Markets analyst Rob Goff thinks there is still money to be made on Kneat.com (Kneat Stock Quote, Chart, News, Analysts, Financials TSX:KSI)

On February 21, KSI reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of negative $400,000 on revenue of $9.8-million, a topline that was up 35 per cent over the same period last year.

“Kneat embarks on 2024 stronger than ever after another year of solid execution. In 2023, we grew closer to customers, expanded the functionality of our software platform, strengthened the infrastructure supporting it and continued to pursue excellence as a company. We are developing a world-class organization behind a world-class platform, built to deliver value to regulated industries for years to come,” said Eddie Ryan, chief executive officer of Kneat.

Goff broke down KS’s valuation and says he sees continued upside.

“We believe KSI represents an attractive investment valued at 6.3x/4.8x 2024/25 EV/revenues and 9.2x/6.9x EV/Gross Profits in the context of larger, slower growth peers Veeva Systems at 11.6x/15.6x EV/2024 revenues and Gross Profits, and Aspen Technology, Inc. at 9.4x/11.2x, respectively,” he noted. “We see KSI shares continuing to warrant a premium to their Canadian peers given the strength of the Company’s land-and-expand profile and attractiveness as a mid-to longer-term takeout where its marquee client sponsorship and accumulated R&D are likely to warrant a premium. Canadian Software and SaaS Survey averages are 5.7x and 6.4x for EV/2024 revenues and 6.9x/9.4x for 2023 EV/2024 Gross Profits. We see aggressive returns against the execution of our forecasts. Our SaaS Survey of 31 companies, trading at 2024 revenue growth of 20%+, is valued at 7.9x EV/2024 revenues, 13.2x EV/2024 Gross Profits, and 32.5x EV/2024 EBITDA. We continue to see KSI as an attractive takeover candidate by a larger competitor such as Veeva or Aspen.”