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TSX Tech Investors: Kinaxis (TSX:KXS) Stock Is a Strong Buy

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Supply chain management has been pushed into the spotlight during the pandemic. When it comes to essential industries, they don’t come much more essential than supply chains. While investing in consumer staples is key, names like Kinaxis (TSX:KXS) are a buy for a lightweight play on infrastructure. Why lightweight? Because Kinaxis is a software name, and that means low overheads and strong market penetration.

Kinaxis leapt 19.8% last week, as investors celebrated another key earnings beat in the Canadian tech space. The win for Kinaxis comes as fellow tech stock Shopify also beat expectations. This momentum is likely to mount as the markets eye a return to normalcy. Top-tier tech names like Kinaxis and Descartes Systems Group have been rallying, as investors look to supply chain safety during the pandemic.

Supply chain stocks are the new utilities

Sales and operations planning (S&OP) is the bread and butter of Kinaxis’s operations. Supply chain management has become a hot investment topic during the pandemic. Both Descartes and Kinaxis are seeing intense interest, as earnings season heats up. Shopify is perhaps the poster child for the digital revolution, with an earnings smash cementing its status. But there’s plenty of room for supply chain momentum as well.

One of the main reasons why Kinaxis delivers such strong results in this space is its use of cloud computing. Look at RapidResponse, the company’s S&OP automation product. The versatility of RapidResponse is key to its success. But perhaps the main reason why an investor may want to consider buying shares is the ubiquity of this product: it’s an industry standard.

This makes Kinaxis a rare play on momentum combined with a wide economic moat. Investors looking for growth in the current market should also be looking at companies like Kinaxis. These businesses mix an upward stock price trend with significant market share. Kinaxis also delivers on diversification, with operations spanning North America, Europe, and Asia.

Tech stocks are a buy amid a strong earnings season

There are technical reasons to own this stock, too. While its market ratios may leave something to be desired (what high-momentum tech stock was ever cheap?) there are strong arguments to buy and hold. Look at that track record, for one thing. The last five years at Kinaxis have seen annual earnings growth of around 18%. Kinaxis is also debt-free, making for as near a perfect balance sheet as an investor could wish for.

Kinaxis also just turned in a truly solid Q1, with 15% total revenue growth. The next three years should see earnings growth exceed 26% annually. That’s far in excess of the market, which looks set for 17% growth by comparison, roughly in line with the tech sector itself. Bear in mind that this growth potential represents something rather different for the TSX: recovery.

The bottom line

Kinaxis is now in a position where it can beat the market to build on a three-month performance that saw its share price double. Compare its 50% growth with the market’s 15% loss over the same period. This combination of supply chain defensiveness and upside makes for a heady investment thesis.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool recommends KINAXIS INC.

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