A Supply Chain Stock I’d Buy Tons of Today

Descartes Systems Group Inc. (TSX:DSG) is a supply chain stock that is on track for strong growth and offers solid value right now.

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Descartes Systems Group (TSX:DSG) is a Dublin, Ontario-based company that provides cloud-based logistics and supply chain management business process solutions that focuses on enhancing the productivity, performance, and security of logistics-intensive businesses around the world. Today, I want to explore why this supply chain stock is worth snatching up as we approach the middle of December 2022. Let’s jump in.

How has this tech stock performed in 2022?

Shares of Descartes were up 2.3% in late-morning trading on December 12. However, the stock has dropped 2.5% in the year-to-date period. Meanwhile, its shares have declined 3.2% compared to the same period in 2021. Investors can refer to the interactive chart below to see how Descartes has performed.

Here’s why I’m excited about the supply chain management software space

Canadian investors should seek exposure to the supply chain management and operations planning software space.

Earlier this year, ResearchAndMarkets projected that the global supply chain management software market was expected to deliver a compound annual growth rate (CAGR) of 11% from 2022 through to 2026. Meanwhile, Verified Market Research estimated that the supply chain management software market was valued at US$23 billion in 2020. The market researcher projects that the market will reach US$51 billion by 2028. That would represent a CAGR of 10% over the forecast period.

Should investors be happy with Descartes’s recent earnings?

This company unveiled its third-quarter (Q3) fiscal 2023 earnings on December 7. It reported total revenues of $121 million — up 12% from the third quarter of FY2022. Meanwhile, income from operations increased 25% to $34.8 million. EBITDA stands for earnings before internet, taxes, depreciation, and amortization. This measure aims to give a more accurate picture of a company’s profitability. Descartes posted adjusted EBITDA of $54.4 million in Q3 FY2023, which was up 13% from the previous year.

Descartes’s chief executive officer Edward J. Ryan emphasized the challenges that the company’s customers had faced in recent quarters. Inflation, shifting exchange rates, geopolitical tensions, freight cost movements, and economic uncertainty have all contributed to a disruption in global supply chains. Fortunately, this environment should spark interest in the services offered by Descartes in the supply chain management space.

In the year-to-date period, this company achieved revenue growth of 16% to $360 million. Services revenues made up 89% of the total, with professional services and license revenues making up 9% and 2%, respectively.

Cash provided by operating activities increased 8% year over year to $141 million. Moreover, income from operations jumped 25% to $96.8 million. Adjusted EBITDA increased 18% from the previous year-to-date period to $159 million in the first three quarters of fiscal 2023.

Descartes: Is this supply chain stock worth buying today?

Shares of this supply chain stock are trading in solid value territory compared to its industry peers at the time of this writing. Moreover, Descartes is well positioned to deliver strong earnings growth in the quarters to come. I’m looking to snatch up this promising supply chain software stock in the final weeks of 2022.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends Descartes Systems Group. The Motley Fool has a disclosure policy.

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