Buy NOW stock for a double, Echelon says

Following the company’s first quarter results, Echelon Capital Markets analyst Rob Goff has maintained his “Speculative Buy” rating on NowVertical (NowVertical Stock Quote, Chart, News, Analyst, Financials TSXV:NOW).

On May 30, NOW reported its Q1, 2024 results. The company posted Adjusted EBITDA of $1.6-million on revenue of $12.9-million, a topline that was up 3% from the same period a year prior.

“We made significant progress in the first quarter on multiple fronts, including leadership and governance, reconfiguring our go-to-market strategy, and implementing an aggressive strategic integration and restructuring plan,” CEO Sandeep Mendiratta said. “This quarter was a transitional period as we initiated implementation of our One Brand, One Business strategy. Supported by our operator-first model, we are executing this strategy across multiple dimensions of our business. These changes enable us to focus on profitability and sustainability and long-term value creation, with positive results expected to build quarter over quarter as we move forward with our growth plan.”

The analyst says there are some things that investors should keep an eye on, and improvements he hopes to see soon.

“While results were solid, growth within the core remains to emerge. Our review of the core performance excludes Allegient and Affinio, as they are sold, and removes A10 where it is in for the full Q124 against two months in Q123. On this basis, Q124 recorded a tough y/y comparison with revenues/gross profits at $4.9M/$2.3M against $6.1M/$3.4M y/y. However, looking into the numbers, Q123 included roughly $0.75M from the conclusion of a major project within the Other category (Signafire), Acrotrend saw a decline of $0.3M y/y as revenues were pulled ahead to Q423 or shifted to Q224 (where it will return to y/y growth), and Q124 revenues saw the negative impact of Argentine FX reduce revenues by $0.34M or 13.2% y/y to $2.2M. The Argentine business continues to perform well in local currency however, its gains are overshadowed by the FX impact. Argentine growth in local currency was 267% although it is impossible to extract the underlying growth as pricing and in turn revenues are significantly inflated by hyperinflationary pricing. The current outlook calls for these core assetsto return to y/y growth with Q224 reporting. Where the outperforming A10 is added back into the core, we look for organic growth in Q224 with building momentum across the year. We note that for Q124 Allegient contributed revenue/gross profit/EBITDA at $4.5M/$1.5M/$0.3M compared to Q123 at $4.2M/$1.7M/$0.4M.”

In a research update to clients May 31, Goff maintained his “Speculative Buy” rating and price target of $0.45 on NOW, implying a return of 105% at the time of publication.

The analyst thinks NOW will post EBITDA of $2.7-million on revenue of $39.6-million in fiscal 2024. He expects those numbers will be EBITDA of $4.0-million on a topline of $36.1-million in fiscal 2025.

“We fully recognize that investor confidence will likely await a demonstration of execution across internal efficiencies, cross-selling, and at some point, acquisitions,” Goff added. “However, the current enterprise value at $25M leaves aggressive upside with successful execution. Conversely, where execution trails the Board’s stewardship objectives, we would expect heightened takeover speculation as NOW strives to move from a situation where the sum-of-the-parts exceeds the whole to the reverse where integration leaves the whole as greater than the sum-of-the-parts.”