Artificial intelligence (“AI”) is the hottest buzzword of 2023. Google, Microsoft, and other top U.S. tech companies are making big bets in the space, particularly in large language models (LLMs). LLMs are the technologies behind services like ChatGPT, the AI-powered chat app that can deliver human-like answers to common questions. LLMs have been wowing the public ever since ChatGPT launched in November, and the big tech companies are all scrambling to get a piece of the action. There is even talk of a kind of “AI war” between Microsoft and Google, which are vying for control of the search market.
There has been comparatively little mention about AI at Canadian companies. Sure, all of the big ones have made announcements about how they’re using AI, but their AI offerings have been less publicized than those of their U.S. peers. For the most part, Canadian tech companies have gotten less credit for their AI efforts than the big U.S. tech giants have.
There is one exception, though. A supply chain logistics company is using AI in truly new and exciting ways. The most obvious “AI play” in Canada, it has a better growth story than most of its Canadian tech cousins. In this article, I will explore this Canadian AI stalwart in detail, and try to determine whether it’s a buy.
Kinaxis
Kinaxis Inc (TSX:KXS) is a Canadian supply chain management company that uses artificial intelligence to create deep insights for its customers. Among other things, it flagship ‘Planning One’ service allows users to:
- Identify trends in demand.
- Forecast necessary inventory levels.
- Plan out how much supply will be needed for specific times of the year.
- Set financial goals.
- Measure progress toward goals.
- View their entire supply chain from the top down with a big picture “bird’s eye view.”
Here’s an example of how a user might make use of Kinaxis’ software:
Let’s say we’ve got a hypothetical bicycle shop owner, Anne. She knows that people buy more bikes around the Summer time, but she needs more specific insights on a week-by-week basis. Using KXS software, she discovers that in the past, customers bought the most bikes in the first two weeks of June. So, she orders larger than average inventory in the final week of May.
The above is but one example of how KXS’ software could be used. In addition to supply chain analytics, KXS offers financial applications, data visualization, and more. Really, their services are like a big picture view on entire companies, giving their users the ability to manage operations in real time.
Recent earnings results
Kinaxis’ most recent earnings were pretty strong, boasting metrics like:
- $98.4 million in revenue, up 44%
- $8.5 million in profit, up from a loss
- $0.30 in earnings per share, up from a loss
- Guidance for 25% to 27% revenue growth for full year 2023
It was a pretty strong release, showing that Kinaxis is a profitable, growing company. The downside with this stock is the valuation. Trading at 85 times earnings and 10 times sales, it’s rather expensive. Still, with growth at 44%, the company could catch up with its valuation. I consider it a ‘hold.’
