Is This Tech Stock a Good Buy?

Are you looking for tech stocks? Today, we look at Descartes Systems Group Inc. (TSX:DSG)(NASDAQ:DSGX) to see if it should be in your portfolio.

| More on:
The Motley Fool

Canada’s high-tech market is dwarfed by our neighbours to the south, but we do have some interesting stocks in this area. Today, let’s look at Descartes Systems Group Inc. (TSX:DSG)(NASDAQ:DSGX) and see if it’s a good buy.

What does Descartes do?

Descartes, which shares the name of the celebrated mathematician and scientist, is headquartered in Canada’s tech hub, Waterloo. The company specializes in logistics software that helps customers manage their shipments and related resources, including regulatory compliance and customs filings. The software also assists with inventory, transportation, and trade.

This is not a new business, so growth is slow but steady. The company has been growing its own client base and products, but it has also been busy with acquisitions. It has purchased three American companies this year, including ShipRush, which deals with shipping solutions, and it provides labels for companies such as FedEx Corporation and UPS-United Parcel Services, Inc. Descartes is a company actively looking to improve its client base and performance.

This is also a company with international exposure, if this is something you want in a stock.

Descartes by the numbers

Descartes last reported quarterly results on September 6. Adjusted earnings per share were US$0.09. This missed analyst expectation of US$0.10 per share, but the result beat 2016’s second-quarter results by 12.50%. Over the last three years, earnings growth has averaged 27.78% annually. This is a nice number, but it lags behind the industry average of 40.85%. Look for third-quarter results to come out on November 29.

The company’s net profit margin sits at 12.06%, which puts it about the middle of the pack compared to its peers. Its return-on-equity ratio is only 5.95% — well behind many of its peers, and below the 15-20% analysts usually like to see. Descartes could do a better job at turning investor dollars into profit.

The number that most concerns me is the stock’s trailing P/E ratio, which sits at an absurdly high 87.39. This means investors are paying quite a premium for future earnings. This is an expensive stock. This doesn’t mean it’s a bad buy, but it is higher risk.

Bottom line

There is a lot to like about Descartes, especially its push to acquire and create new business. Its earnings are expensive right now, but it’s been producing steady results. If you don’t mind an expensive stock, this could be a good fit for your portfolio.

And if you are looking at other tech stocks to consider, check out this recent Fool article.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Susan Portelance has no position in the companies mentioned. David Gardner owns shares of FedEx.

More on Tech Stocks

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

This Tech Stock Could Dominate the Future of AI and Cybersecurity in Canada

OpenText may come to dominate the cybersecurity arena in Canada.

Read more »

Data center servers IT workers
Tech Stocks

Best Stock to Buy Right Now: Open Text vs CGI?

Both companies are dealing with information technology and harnessing the power of AI. Only one has an unmatched history and…

Read more »

Concept of big data flow, analysis, and visualizing complex information for artificial intelligence
Tech Stocks

A Tech Stock to Buy Now in the AI Bull Market

Alphabet (NASDAQ:GOOG) stock may be the cheapest American AI tech stock to pick up as markets near new highs.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Is This Canadian Tech Stock the Next Big AI Winner?

This Canadian tech stock is one of the biggest names out there still, and it's one to keep an eye…

Read more »

Person uses a tablet in a blurred warehouse as background
Tech Stocks

This AI Stock Down 12% Is My Moonshot Investment

This AI-powered supply chain management and operation planning software company is my top pick to leverage AI tech for years…

Read more »

coins jump into piggy bank
Tech Stocks

2 Top TSX Stocks to Buy and Hold in Your TFSA

Here's why TFSA investors should consider owning top TSX stocks such as DCBO in their equity portfolio right now.

Read more »

Stethoscope with dollar shaped cord
Tech Stocks

1 Canadian Healthcare Stock That’s My Defensive Growth Play

Well Health Technologies is seeing rapid growth as it brings the benefits of technology to the healthcare sector.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

1 AI Chip Stock Down 19% That’s Built for the Next Tech Boom

Apple (NASDAQ:AAPL) stock is an underrated AI chip play that's going for cheap this July.

Read more »