Investing in quality small-cap stocks is a proven strategy to build long-term wealth. For instance, Microsoft was valued at less than US$800 million when it went public almost 40 years ago. Since its initial public offering, the software giant has returned a monstrous 428,000% to shareholders and is currently the largest company in terms of market cap.
While identifying the next Microsoft is next to impossible, investors can consider allocating a small portion of their investments toward small-cap stocks that are part of expanding addressable markets. One such TSX small-cap stock is Sylogist (TSX:SYZ), which is valued at $210 million by market cap.
Shares of Sylogist have already gained 20% in 2024 and are up close to 50% in the last 12 months. Let’s see why I’m bullish on this tech stock right now.
An overview of Sylogist
Sylogist is a public sector SaaS (software-as-a-service) company that provides ERP (enterprise resource planning), CRM (customer relationship management), fundraising, education administration, and payment solutions to entities.
It serves more than 2,000 customers globally, including various governments, non-profit organizations, educational institutions, and other public companies.
Sylogist enjoys a strong recurring and scalable service model that results in higher customer lifetime value. It enters into multi-year customer agreements that allow the company to derive a steady stream of cash flows across business cycles.
How did Sylogist perform in Q1 of 2024?
Sylogist ended the first quarter (Q1) of 2024 with annual recurring revenue (ARR) of $42.5 million, up 7% year over year. Its remaining performance obligations stood at $26.8 million, while bookings grew 18% to $9.1 million. The SaaS company reported a net retention rate of 106% in Q1, which means existing customers increased spending by 6% in the last 12 months.
Despite headwinds such as inflation, Sylogist posted an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $4.2 million, indicating a margin of 25.9%.
Sylogist stated it achieved record bookings in Q1, and a third of its 18% growth for this metric was partner-attached. In the year-ago period, Sylogist booked less than $110,000 of partner-attached wins, which tripled in Q2 and surged by eight times by the end of Q4, resulting in almost $1 million in partner-attached deals.
Lastly, Sylogist emphasized its sales pipeline expanded by 185% in Q1 due to strong performance across business segments.
Is Sylogist stock undervalued?
Analysts tracking Sylogist expect sales to rise from $65 million in 2023 to $72 million in 2024 and $81 million in 2025. Comparatively, its adjusted earnings per share is forecast to expand from $0.05 in 2023 to $0.15 in 2024 and $0.29 in 2025.
So, priced at 60 times forward earnings, the tech stock might seem expensive. However, a growth stock commands a lofty multiple, given its robust growth estimates.
Due to its consistent earnings, Sylogist also pays shareholders a quarterly dividend of $0.01 per share, indicating a forward yield of 0.45%. While the forward yield might seem unattractive, Sylogist should raise these payouts going forward, especially if its earnings growth accelerates.
Analysts tracking the TSX stock remain bullish and expect shares to surge over 40% in the next 12 months.
