Shares of high-growth tech stock Kinaxis (TSX:KXS) rose 13.9% on Friday after it announced stellar third-quarter results. Kinaxis reported revenue of $47.1 million — year-over-year growth of 29%.
It’s SaaS sales rose 28% to $31.2 million and accounted for 66% of sales. Adjusted EBITDA rose in line with sales by 29% to $12.1 million and accounted for 26% of Q3 sales. Kinaxis beat analyst revenue estimates of $44.75 million in the September quarter.
Company CEO John Sicard attributed the company’s revenue growth to major contract wins. Sicard stated, “As expected, our success in the second quarter winning some very large new customers, such as British American Tobacco, Honda, Yamaha Motors, Teva Pharmaceuticals and others has led to faster SaaS revenue growth in Q3.”
He added, “Bookings were strong again in the third quarter, such that our backlog has grown further and provides excellent visibility into the remainder of 2019. We are increasing all aspects of our guidance, with higher expectations for SaaS, term licence and total revenue, as well as a higher EBITDA target for the year.”
In fiscal 2019, Kinaxis has forecast sales between $188 million and $190 million. It expects SaaS growth of 22% year over year and an adjusted EBITDA margin between 27% and 29%. Comparatively, analysts forecast Kinaxis to post revenue of $185.73 million in 2019.
The company’s revenue beat and solid forecast resulted in a 14% gain for investors on November 1, 2019.
Kinaxis named a leader in Control Tower Technology
Kinaxis provides cloud-based subscription software for supply chain operations. Its RapidResponse product provides supply chain planning and analytics capabilities that enable enterprises to manage supply chain processes such as demand & supply planning, inventory management, capacity planning, and order fulfillment.
It has a wide base of customers across industry verticals. Market research company Nucleus Research recently named Kinaxis as a leader in the Control Tower Technology Value Matrix for the third consecutive year.
The company ranks highly on the Greater Usability axis. Nucleus Research has particularly outlined machine learning and AI algorithms as key capabilities. Kinaxis has been identified as a leader, as its RapidResponse platform allows users to have a real-time view of the entire enterprise ecosystem.
Last month, Kinaxis expanded its RapidResponse platform and claims the product to be the “first and only concurrent planning platform with the power to create custom, interconnected applications and algorithms, and operationalize external algorithms in practical, profitable ways across the supply chain ecosystem.”
The company is investing heavily in product development. It wants to strengthen the building blocks of the user platform and include new data visualizations. Kinaxis has also patented a way to present data on smaller devices like smartphones.
Kinaxis claims supply chain planners will now be able to reduce time spent on deriving insights by a significant margin. These investments will help expand the company’s competitive and intellectual advantage and expand the customer base.
Stock returns and valuation
Kinaxis stock has been on a tear since its IPO back in June 2014. It has returned 636% as a publicly listed company and has been one of Canada’s more successful tech IPOs. This monumental return has meant that the stock is trading at a forward price-to-earnings ratio of 72.6. Its forward price-to-earnings multiple was around 60 in July 2019.
Comparatively, its earnings are estimated to rise by just 23.7% in 2019 and 10% in 2020, indicating that the stock is trading at a premium. Analysts expect Kinaxis to increase sales by 23.2% to $185.73 million in 2019 and 12.7% to $209.34 million in 2020. It has a market cap of $2.5 billion and is valued at 13.5 times forward sales.
Kinaxis stock is trading at expensive valuations. But it has a solid product that is gaining traction in international markets and has huge potential to scale across geographies. While investors can expect the stock to remain volatile in a downturn, it remains a solid long-term buy and needs to be bought at major dips.
