Down 34% From All-Time Highs, Is Kinaxis Stock a Good Buy?

Kinaxis has delivered market-beating gains to shareholders in the past decade. Is the TSX tech stock still a good buy right now?

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Kinaxis (TSX:KXS) is a Canadian tech stock that has returned over 1,000% since its IPO (initial public offering) in June 2014. Currently, KXS stock trades 34% below all-time highs and is valued at $4.3 billion by market cap.

Kinaxis provides an enterprise-facing cloud-based software-as-a-service platform that helps companies make business decisions across integrated business planning and the digital supply chain.

Let’s see if you should buy the dip in Kinaxis stock right now.

Is Kinaxis stock a good buy right now?

In the fourth quarter (Q4) of 2023, Kinaxis reported revenue of US$112 million, an increase of 14% year over year. Its gross profits rose by 12% to US$68.9 million, indicating a margin of 62%. In 2024, the company increased revenue by 16% to US$427 million with adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of US$75 million or 18%. Moreover, Kinaxis ended 2023 with a record free cash flow of over US$75 million.

In Q4, Kinaxis grew its SaaS business by 19%, allowing it to finish the year within its guidance targets. It also had a huge quarter for renewals, showcasing strong customer retention rates. For instance, consumer products giant Bosch renewed its subscription with Kinaxis and was a key driver of annual recurring revenue, or ARR, for the latter in 2023.

Kinaxis won a record number of customers in 2023. It initiated a growth strategy in 2021 enabling it to expand its mid-market customer base aggressively in the last three years. Around 40% of its new wins in 2023 came from midmarket or smaller customers, which should provide it with expansion opportunities in the future.

Some of the largest customers for Kinaxis include ExxonMobil, and Volvo. It recently onboarded Hobby, one of the largest quick-service restaurants, to simplify its supply chain requirements. In 2023, Kinaxis also added Brooks Sports to its client list as well as Syngenta, an agri-tech company with $30 billion in sales.

Combined with customer wins and renewal activity, Kinaxis ended 2023 with record RPO (remaining performance obligations), providing shareholders with enough revenue visibility. Its SaaS RPO rose 28% compared to Q3, and its three-year annual growth rate is quite robust at 26%.

What is the target price for KXS stock?

Earlier this year, Kinaxis launched artificial intelligence and machine learning-powered capabilities to help retailers manage complex operations at scale. These product expansions include restocking planning capabilities, retail-specific enhancements, and demand planning. The retail market is Kinaxis’s largest market, and the company’s widening portfolio of products should help it gain market share.

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These innovations have helped Kinaxis acquire and retain customers and expand within its installed base. In 2023, around 60% of annual recurring revenue expansion was driven by new customers, while the rest was due to an increase in customer spending.

Analysts tracking Kinaxis expect sales to rise by 14.7% to $662 million in 2024 and by 21% to $802 million in 2025. Comparatively, adjusted earnings are forecast to expand from $2.18 per share in 2023 to $2.7 per share in 2024 and $4 per share in 2025. Priced at 55.6 times forward earnings, KXS stock is quite expensive. However, analysts remain bullish and expect it to surge over 30% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Kinaxis. The Motley Fool has a disclosure policy.

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