Canadian artificial intelligence (AI) decision-making platform vendor Copperleaf Technologies (TSX: CPLF) stock is making good waves in 2024. Up 51% year to date, the small-cap AI stock is among the best-performing TSX technology stocks so far this year. However, shares remain 65.2% below their all-time highs recorded in October 2021. Should investors buy the AI-powered stock expecting it fully recovers?
Copperleaf Technologies provides AI-powered decision analytics solutions for companies to manage critical infrastructure, and make decisions considering qualitative investment issues like environmental, social, and governance (ESG) – an increasingly relevant capital investment evaluation dimension today.
A full recovery in Copperleaf Technologies stock would take it above $25 a share, a potential 180% gain from current trading ranges. Let’s weigh the odds of this happening in the near future.
Copperleaf Technologies: An AI stock on the recovery path
Copperleaf Technologies stock recorded all-time highs during the first month of trading following its initial public offering (IPO) in October 2021. Strong revenue growth rates and IPO stock euphoria propelled its valuation. A sales growth rate of 56% for 2021 elated a bullish investing public, but a 6% year-over-year sales growth rate for 2022 dimmed hopes and dampened spirits. Shares plunged to all-time lows below $4 a share by November of the same year as investors dumped speculative assets. However, Copperleaf has just returned to double-digit revenue growth in 2024, and it’s inching closer to being profitable.
CPLF Revenue (Quarterly) data by YCharts
The AI stock reported 29.4% revenue growth during the first quarter of this year and has increased its most recurring sales by 32% during the past 12 months. The business is scaling up, expanding into new industry sectors, and solidifying its presence in core geographies. Sales in the Americas segment remained resilient, while revenue from Asia and Japan (the smallest segment) grew 66.4% year over year to almost match sales in Europe, the Middle East, and Africa during the last quarter.
Companies are rapidly adopting artificial intelligence, and an increasingly global Copperleaf recently added generative AI (GenAI) to its cloud-native platform. Copperleaf’s revenue backlog recently surged by 32% year over year to $145.5 million (or about 1.7 years of passive sales), and its gross margins are tracking higher again.
Most noteworthy, Copperleaf is on the verge of becoming self-sustainable, financially. Although the company is still making operating losses, these margins significantly narrowed for the first quarter, and its cash flow from operations has grown positively to almost covering its investment needs. The company could soon be self-reliant and finance growth projects from internally generated free cash flow. Cash flow is the lifeblood of any business, and this small-cap growth stock could be internally generating its own soon.
Internally generated cash flow is cheaper, and anti-dilutive to current shareholders.
Should you buy it?
Investors could buy Copperleaf Technologies while it gathers new recovery momentum. The AI stock is enjoying positive sentiment as it returns to double-digit revenue growth rates. It’s gathering price growth momentum while gaining wider market exposure following a recent IPO. Sustained revenue growth during the remainder of 2024 could sustain the positive momentum on the CPLF stock price.
Despite a recent run, the AI stock appears reasonably valued with a forward price-to-sales (P/S) multiple of 6.2, which is below theindustry average of 9.5.
Further, Copperleaf retains a cash-rich balance sheet with no debt on its books. The company has no leverage risks and could soon organically finance its growth projects while trying to grow market share in a $12 billion industry.
That said, it appears highly unlikely Copperleaf stock will recover its prior highs this year. On top of expected 28% revenue growth this year, Bay Street analysts project a 23% growth in the company sales to $124 million by 2025. Share prices above $25 a share would imply a forward P/S multiple above 15 – making the small AI stock too expensive given its industry’s average metrics.
Although it’s highly speculative, a $15 share price could be doable over the next 12 months if recent growth momentum sustains beyond the fourth quarter of this year while profitability becomes more visible. The company usually sees huge client interest during the fourth quarter as customers evaluate investment options for the upcoming new year.
