National Bank Financial's third quarter earnings preview published on October 19 by analysts Richard Tse and John Shao, features eleven technology stocks with "Outperform" ratings (and two with "Sector Perform" ratings). The document is an excellent guide to stocks in the innovation sectors that the analysts find undervalued in this market, which many believe to be oversold. (Note: all target prices are as of the October 19 publication date and all figures are in Canadian dollars except where noted otherwise.) Stock: Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD) Rating: Outperform Year-to-date return: -55 per cent Target Price: US$65.00 Projected 12-month return: 275 per cent E-commerce engine Lightspeed has had a rough past 12 months, with the stock falling dramatically over that period, but Tse is optimistic going into the company’s fiscal second quarter results. The analyst pointed to LSPD being a beneficiary of the reopening of physical stores, while recent acquisitions should also make their mark in a positive way for the company. The calendar third quarter should also see a resurgence in the hospitality sector, to the benefit of Lightspeed. “Given the backdrop for high growth names and our view that Lightspeed stands to benefit from a surge in travel, we’d look to opportunistically wade into this name. We see the name trading at a compelling valuation of 2.2x EV/F23 Sales (at time of writing), particularly given an organic growth rate that’s expected to be in the range of 35 per cent to 40 per cent which makes for an attractive risk-to-reward profile for investors,” Tse said. Stock: Magnet Forensics (Magnet Forensics Stock Quote, Charts, News, Analysts, Financials TSX:MAGT) Rating: Outperform Year-to-date return: -26 per cent Target Price: $50.00 Projected 12-month return: 106 per cent In-line to slightly better-than-expected third quarter results are expected from digital investigation software name Magnet Forensics, according to Shao, who thinks the market has so far underappreciated the company’s operating prowess along with its market opportunities which aren’t dependent on wider economic conditions. Investors can expect third quarter topline growth of about 35 per cent and a 15 per cent EBITDA margin, which represent “remarkable performance” for an early-stage tech name in today’s environment, the analyst said. “We believe Magnet Forensics is an early leader in the market with a suite of competitive offerings to target both public and enterprise clients. The quality of its business model is underscored by its financial performance with strong growth and profitability,” Shao wrote. Stock: mdf commerce (mdf commerce Stock Quote, Charts, News, Analysts, Financials TSX:MDF) Rating: Sector Perform Year-to-date return: -48 per cent Target Price: $3.00 Projected 12-month return: -5 per cent Tse said there’s a potential for a slowdown in government procurement business for mdf given the current economic backdrop, and that could weigh negatively on the company’s revenue from recent acquisition, Periscope, which has procurement as about a third of its business. “Longer term, we continue to believe acquisition has potential to re-rate the stock (upwards) given the possible consolidation play in a disparate market,” Tse wrote. Stock: Nuvei Corporation (Nuvei Corporation Stock Quote, Charts, News, Analysts, Financials TSX:NVEI) Rating: Outperform Year-to-date return: -57 per cent Target Price: US$75.00 Projected 12-month return: 186 per cent Tse sounded a note of caution around payments company Nuvei, saying there’s potential downside risk to the third quarter earnings stemming from the current economic backdrop which has an outsized impact on key verticals for the company in gaming, digital currencies and e-commerce. At the same time, Tse is positive on Nuvei, saying the company’s underlying business is strong and with potentially impactful business in growth markets of the economy. “We continue to believe Nuvei is uniquely positioned for growth in a market that’s undergoing a meaningful transformation. Within that market, Nuvei remains a disruptive player with outsized growth relative to the sector,” he said. Stock: OpenText (OpenText Stock Quote, Charts, News, Analysts, Financials TSX:OTEX) Rating: Outperform Year-to-date return: -41 per cent Target Price: US$60.00 Projected 12-month return: 123 per cent Information management software company OpenText got slammed after a recently announced acquisition of UK-based Micro Focus, but Tse said his group has done a number of industry checks in relation to Micro Focus and suggests the market’s concerns are “overdone,” making OTEX a compelling opportunity here. “For FQ1 (September), we’re expecting high-single-digit growth for Cloud Services revenue as OpenText continues to transition customers to Cloud coupled with a modest contribution from Zix. We believe this revenue shift will increase the Company’s recurring revenue base by ~100 bps Y/Y to ~84.1 per cent of total revenues,” Tse said. Stock: Pivotree Inc (Pivotree Stock Quote, Charts, News, Analysts, Financials TSX:PVT) Rating: Outperform Year-to-date return: -14 per cent Target Price: $8.00 Projected 12-month return: 119 per cent Pivotree recently released a restructuring plan which included the termination of some employees, but improving underlying fundamentals are a good sign from Pivotree, according to Shao, making him see a turnaround story taking shape, with healthy organic growth and an improving path to profitability. “Our investment thesis remains unchanged. We believe Pivotree is a leading provider of eCommerce and MDM services in a market that’s still in an early stage of scaling for large enterprises,” Shao wrote. Stock: Q4 Inc (Q4 Inc Stock Quote, Charts, News, Analysts, Financials TSX:QFOR) Rating: Outperform Year-to-date return: -58 per cent Target Price: $5.00 (previously $7.00) Projected 12-month return: 35 per cent Investor relations software firm Q4 could see a note of trouble in its third quarter results, said Tse, in light of the soft capital markets backdrop. The lull in IPO’s is an issue, even as management has shifted focus to profitability over growth in the short term, leading to more risk on the revenue side, Tse said. But accretive acquisitions are likely on the horizon and Tse still likes the name, particularly in regards to its current valuation. “We’ve become increasingly cautious of the thesis that heightened demand for their remote solutions would continue beyond the peak levels we’ve seen in recent years. For now, we maintain our Outperform rating on QFOR with a revised price target of $5.00,” Tse wrote. Stock: Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL) Rating: Sector Perform Year-to-date return: -43 per cent Target Price: $6.00 Projected 12-month return: 26 per cent Mortgage lending and insurance platform Real Matters kept its Sector Perform rating with National Bank, with Tse saying the upcoming fiscal fourth quarter numbers are likely to be some of the softest seen from the company in some time. He noted that the 30-year fixed mortgage rate is now above seven per cent, for example, causing refinance volume in the last week of September to fall by about 84 per cent year-over-year, while home affordability in the US has reached its worst level in 37 years. “While we continue to see long-term potential in REAL (particularly given its continued market share gains), given its unique platform that supports some of the most prominent lenders in North America, we believe that the stock will likely mark time given a challenging outlook for both origination and re-fi volumes,” Tse wrote. Stock: Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP) Rating: Outperform Year-to-date return: -79 per cent Target Price: US$60.00 Projected 12-month return: 112 per cent Tse thinks e-commerce juggernaut Shopify should deliver Q3 results that are in-line with consensus estimates, with Gross Merchandise Volume moderating over the quarter with the continued reopening of bricks and mortar. Also moderating will be SHOP’s take rate, he said, indicating that the company’s merchant additions are more likely to come from international markets. At the same time, Tse still sees Shopify as in the early stages of a fundamental shift in commerce towards online sales, although the stock is likely to mark time over the shorter term. “We believe Shopify remains a leading eCommerce disruptor and believe upside in the stock will come from a number of different incremental growth drivers such as 1) International; 2) increased take rate with new services; 3) fulfillment (SFN); 4) large enterprise (Shopify Plus); 5) POS for SMB retail,” Tse wrote. Stock: Softchoice (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC) Rating: Outperform Year-to-date return: -6 per cent Target Price: $28.00 Projected 12-month return: 41 per cent Cloud migration company Softchoice was upgraded by NBF last quarter after a strong Q2 and the alleviation of a few risks relating to supply chains and labour markets. Shao said in-line results are expected for a seasonally slower Q3 from the company, while the analyst said Softchoice is notable for its defensive attributes, as demonstrated by its year-to-date return of just negative 11 per cent compared to greater losses across the tech space. “We like Softchoice for its strong cash flow profile that gives the Company flexibility in generating shareholder returns – a valuable defensive attribute that should bode well in a volatile market,” Shao said. Stock: Tecsys (Tecsys Stock Quote, Charts, News, Analysts, Financials TSX:TCS) Rating: Outperform Year-to-date return: -43 per cent Target Price: $50.00 Projected 12-month return: 68 per cent Shao said Tecsys’ SaaS business should see a growth rate of over 30 per cent for the upcoming fiscal Q2 report, while better margins are expected as its SaaS business scales. “Time has allowed Tecsys to scale and expand its platform into a growing logistics powerhouse within the healthcare vertical. That fortification along with growth initiatives which include strategic and operational investments and acquisitions are putting Tecsys in a position to scale into broader markets. We believe Tecsys is on the cusp of scaling into a bigger company,” Shao wrote. Stock: TELUS International (TELUS International Stock Quote, Charts, News, Analysts, Financials TSX:TIXT) Rating: Outperform Year-to-date return: -20 per cent Target Price: US$50.00 Projected 12-month return: 93 per cent On the macro end for TELUS International, Tse said with online social content becoming more of a concern for regulators, content moderation services will continue to rise in prominence, with TELUS’ offerings becoming more in demand as a result. TELUS’ digital customer experience market should continue to see outsized growth, as well, given the ongoing digital transformation across enterprises. TELUS International should deliver in-line results for its third quarter, with Tse expecting growth of 17.5 per cent year-over-year. “In our view, the Company has the ability to accelerate that growth through acquisitions given its comfortable leverage ratio (Net Debt/EBITDA) of 1.5x (below the low end of the Company’s 2x-3x target range) and $911 million in available liquidity at the end of FQ2,” Tse said. Stock: Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC) Rating: Outperform Year-to-date return: -80 per cent Target Price: $4.00 (previously $5.00) Projected 12-month return: per cent Finally, online learning platform Thinkific should deliver in-line third quarter results, Tse said, although the more macro backdrop could present challenges. On the short term, the company’s execution on Payments will be an interesting feature to watch. “We continue to see Thinkific as a leader in the online learning market with a competitive platform for content creators. With incremental growth drivers such as Thinkific Payments and the Thinkific App Store, we still see a meaningful runway of growth particularly from ARPU expansion for existing customers,” Tse wrote.