The TSX could be heading towards a bull market, evidenced by its 11.2% gain in the last six months. As of this writing, Canada’s primary stock market is up 18.1% year-to-date, and except for communications services, 10 primary sectors have positive returns.
Today, the rate-sensitive, high-growth information technology sector benefits from the ongoing rate-cutting cycle by the Bank of Canada. However, despite the market-beating 20.8% year-to-date gain, some constituents underperform or are undervalued.
Evertz Technologies (TSX:ET) has a good forward price-to-earnings ratio (15.2 is below the average P/E ratio of 20–25), yet trades at a discount. At $12.19 per share, the tech stock is down 8.4% year-to-date and is a buying opportunity. The 6.4% dividend yield could compensate for the temporary weakness.
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Rock in an evolving industry
Evertz operates in the television, telecommunications, and new-media industries. It designs and manufactures video and audio infrastructure solutions and markets them to broadcasters, content creators, specialty channels, and television service providers. Management believes that Evertz is a rock in an evolving industry that is adopting cloud and IP-based solutions.
The $927.8 million high-growth company aims to help customers build more extensive and encompassing systems. Evertz’s software and services are their growth catalysts, no less. That is why the business is transforming into more software and reoccurring-based offerings and solutions.
Evertz commits to innovation and aims to maintain its technological leadership in a constantly changing industry. The company invested $135 million in research and development in the past year and has reached $500 million in the past five years. Its R&D activities cover a diversified portfolio and leverage expertise in networking and security, and through the use of artificial intelligence (AI).
Financial performance
Evertz describes fiscal 2024 as an outstanding year, owing to the $514.6 million in annual revenue, a new record. In the 12 months ending April 30, 204, net earnings increased 10% year-over-year to $71 million, while market share increased to a substantial 13%.
In Q1 fiscal 2025 (three months ending July 31, 2024), revenue and earnings declined 11.3% and 38.9% respectively to $111.6 million and $9.7 million compared to Q1 fiscal 2024. Reoccurring software, services, and other software revenue rose 26% to $55.9 million from a year ago.
Evertz said it has significant momentum to start a new fiscal year, given key customer orders and a robust pipeline. As of August 31, 2024, the purchase order backlog is over $302 million. The company also expects to benefit from broader adoption within the Media and Entertainment technology industry, as well as vertical and adjacent markets.
Positive outlook
Management maintains an upbeat revenue outlook, especially within the cloud native technology and service business, despite lower top and bottom-line results in Q1 fiscal 2025. R&D will continue to invest in new product developments to cement its position as the broadcast industry’s leading supplier.
Evertz Technologies is a rare gem because very few high-growth companies pay dividends. The tech stock started paying quarterly dividends in December 2014 and in some years, and the Board even approved a special dividend in some years. A breakout or rise to its 52-week high of $15.45 (+26.7%) is possible.
